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Subcontractor Tips for Construction Collections

Subcontractors are often plagued with cash flow issues from slow paying general contractors. It’s par for the course. However, subcontractors and suppliers have rights, and understanding the numerous laws, codes, procedures, and tools can and will help a subcontractor collect money in a more timely fashion. While serious matters of trouble collected should be consulted with an attorney, a subcontractor or supplier should know its rights.  Here are some of the tools a subcontractor has to help collect:

For Private Work (per California Law, check each states rules)

  • Send a Preliminary Notice. Within 20 days of starting work on a project, send a Preliminary Notice to owner. This is a must and the first thing any contractor should do, whether a private or public works project.
  • File a Stop Notice. A subcontractor has 30 days after a Notice of Completion has been filed. This will stop the flow of funds on the project.
  • Record a Mechanic’s Lien. This gives the subcontractor a stake in the property in the amount of lien. A subcontractor has 30 days after a Notice of Completion has been filed to record a mechanic’s lien.
  • Make claim on Payment Bond (If project was bonded).  It’s not often a private job is bonded, but if it is a subcontractor can make a claim against the payment bond.

For Public Work

  • File a Stop Notice. Just like a private project, a subcontractor can file a stop notice to disrupt the release of funds.
  • Make a claim against the Payment Bond.  In California, if the project is above $25,000 there is a payment bond in place.  And it’s in place to protect the subcontractors and suppliers on the job.

As a subcontractor you have these tools at your disposal. It’s always best to try and resolve payment issues without making claims against bonds, or filing stop notices or mechanic’s liens.  But a subcontractor should always file a preliminary notice so it has the recourse of the other items should he not be paid.

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2 thoughts on “Subcontractor Tips for Construction Collections”

  1. Michael says:

    Our contractor had us make “progress payments” on our home remodeling project.
    The progress payments would be for specific items such as “Plumbing” or “Electric”
    As we have gotten to the very end of our project with only the drywalling of the garage and the
    concrete steps in our front yard the contractor has moved on. He rarely responds to our emails or phone
    calls. The story is he’s “out of money”. He told us he needed to get another job to get the money to finish our project. He asked us to be patient but after many months we believe he is not going to return.
    In the meantime, the electricians and plumber have contacted us directly to say they have not been paid in full.
    The electrician is still owed over $3000 and the plumbers are owed over $7000.
    As far as we are concerned, we have paid them both in full according to our progress payment schedule.
    Now both the electrician and the plumber are threatening to put a lien on our property if we don’t pay the balance due. Why should we have to pay for their services twice? Why are they calling us directly and not dealing with the contractor personally?
    We still have about $15,000 or more worth of work to be done. According to our progress payment schedule we owe the contractor about $7000 to complete the work specified on the contract. That is why the contractor has gone away and doesn’t return our calls.
    If we go after the bond which is for $15,000 that may finish our work to be done according to the contract but it still leaves us exposed for about $10,000 owed to the Plumber and electrician. Should the Plumber and Electrician file a claim against the bond instead of us?
    What should we do? Do we hire another contractor to complete our work to be done?
    How do we close/complete our original contract with our original contractor if we hire somebody else?

    1. John says:

      We are not attorneys so cannot give legal advice, however, you might want to make a claim on the bond right away. If the contractor has gone dark, chances are he has left other clients in the lurch as well. The bond is only $15k and that is a total amount, not an amount for each consumer that has been duped. The subcontractors have a right to lien your property if they are not paid even though you paid the general contractor. For the remainder of the work, make sure you get lien releases from all sub contractors and suppliers prior to making anymore payments. Good luck.

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