2/23/2020 Contractor Refuses to Pay Subcontractor: Everything to Know

Contractor Refuses to Pay Subcontractor: Everything to

Know
When a contractor refuses to pay subcontractor, the subcontractor has grounds to pursue legal action to collect the money
that is owed to them.3 min read

When a contractor refuses to pay subcontractor, the subcontractor has grounds to pursue legal action to collect the money
that is owed to them.

Subcontractor's Rights When a Contractor Won't Pay

Building projects normally involve multiple subcontractors such as:

Electricians
Bricklayers
Plumbers
Carpenters

Usually, the main contractor is responsible for coordinating and supervising all of the subcontractors. One of the contractor's
responsibilities involves making sure each of the involved subcontractors and suppliers is paid for their work. In the event
that a subcontractor isn't paid, they may have grounds to pursue legal action against the contractor. Usually, though, it's
easier to pursue action against the owner of the property than it is to go after the contractor.

If a subcontractor doesn't get paid, they can file what is known as a "mechanic's lien" against the property they've been
working on. The first thing they'll need to do is notify the owner of the property. If the owner then fails to pay, the
subcontractor can then file the lien. A mechanic's lien can be used to foreclose on the property in question as a means to
collect the money the subcontractor is owed when the property sells.

In cases like this, it doesn't matter whether or not the owner of the property has paid the contractor in good faith. There are
laws in place that are designed to protect a subcontractor and make sure they get paid, even if that means that the property
owner has to pay more than once for the work that's been done.

An alternative to filing a mechanic's lien is to go after the contractor directly. Subcontractors can also report contractors to
the appropriate state licensing board if they fail to pay. Exact rules and penalties associated with failing to pay a
subcontractor will vary from one state to the next. For example, in the state of California, a subcontractor can sue for the
following:

The original amount they are owed

Interest
Legal fees
Penalties of up to two percent of the original bill

Subcontractors are not restricted to taking such action only when they aren't paid. They can also pursue similar action when
a contractor delays in paying a subcontractor for longer than the state allows.

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2/23/2020 Contractor Refuses to Pay Subcontractor: Everything to Know

When Can Contractors Withhold Payment From Subcontractors?

Contractors normally bid on large projects and then hire subcontractors to perform a significant portion of the work to be
performed. Subcontractors usually specialize in specific areas such as:

Carpentry
Electric work
Plumbing

If you're a contractor, it's only a matter of time before you end up working with a subcontractor that doesn't perform their
portion of the job according to the standards of the contract you both agreed to. Payment can be withheld from
subcontractors under very limited conditions. If you're not absolutely certain that your reasons for withholding payment are
legal and legitimate, the subcontractor may be able to take action against you and win.

In most cases, you can't legally withhold payment from a subcontractor when the job you've been contracted on fails to pay
on time or, even worse, doesn't pay at all. You're still responsible for making sure your subcontractors are paid.
Subcontractors will likely be able to place a mechanic's lien against the property in question to recover the money they are
owed which, in turn, could end up costing you more money. To legally be able to withhold payment in these scenarios, your
contract needs to include a "pay-if-paid" clause that specifies that you are not required to pay subcontractors if you yourself
don't get paid for the job.

In the event that a subcontractor doesn't perform to the standards of the contract, you are required to pay any current
payments for work they have completed. However, you are not required to pay them for the remainder of the job. Keep in
mind, however, that this rule can only be applied if the subcontractor is at fault for the poor quality of work. If substandard
work was performed due to some contributing factor that was beyond of the subcontractor's ability to control, you will likely
still be required to pay them.

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