Construction Joint Check Agreement Forms: How They Work and Why They’re Needed
Construction joint check agreement forms can be a great additional measure to ensure payment for services and materials from a general contractor.
However, each construction joint check agreement form can vary in terms of language and agreements.
In this guide, we will discuss how to navigate and enforce your construction joint check agreement form.
Table of Contents
- Flexbase: Helping You Keep Track of Joint Check Agreements Is One Part of Our Cash Flow Management Solution
- What Is a Joint Check Agreement in Construction?
- How Basic Joint Check Agreements Work
- 2 Things to Consider Concerning Joint Check Agreements
- 2 Instances When You May Need to Enforce a Joint Check Agreement
- How to Enforce a Joint Check Agreement
- Beware of Joint Check Fraud
- Let Flexbase Help You Manage Your Cash Flow and Paperwork
Flexbase: Helping You Keep Track of Joint Check Agreements Is One Part of Our Cash Flow Management Solution
Flexbase makes it easier than ever to manage all your paperwork and cash flow in one convenient, digital space.
We help ensure you receive payment from your joint check agreement by automatically sending out …
- Payment reminders
- Notices; and
… as needed.
Click here to learn more about how Flexbase can help you stay cash flow positive.
What Is a Joint Check Agreement in Construction?
In simple terms, a joint check is a check that is made payable to two or more parties. When a contractual agreement is made to give one party permission to make payments in the form of joint checks, it is called a joint check agreement.
While joint check agreements can be utilized in any industry, they are most commonly used in construction. This is because there are generally multiple tiers of parties involved in a typical construction project.
How Basic Joint Check Agreements Work
Basic joint check agreements typically involve a:
- General contractor
- Subcontractor; and
- Material supplier
Joint check agreements are a good safety measure for materials suppliers because they can help protect the supplier from not getting paid.
In a joint check agreement, the …
- General contractor
- Subcontractor; and
- Material supplier
… must all agree that any payments made in exchange for work involving the supplier’s materials will be written jointly to the subcontractor and the material supplier.
This agreement protects the material supplier from non-payment even after the subcontractor receives payment from the general contractor.
General contractors also benefit from these agreements, as ensuring the material supplier gets paid prevents the need for the supplier to file a mechanics lien.
Joint Check Agreements Must Be Signed By All Involved Parties
The bottom line to joint check agreements is that all parties must agree and sign the joint check agreement.
Even one missing signature from the parties involved can put the joint check agreement in jeopardy.
The only party that may be shown leniency for not signing the agreement is the lowest-tier who is receiving the benefit from the agreement, such as the original contract’s obligor. This is because many states’ case law* (not all) suggests that there is no obligation for the party benefiting from the agreement to sign it.
Regardless of which camp you fall into, it is best practice to always sign the joint check agreement.
There Is No Such Thing as a Standard Joint Check Agreement
The concept of joint check agreements was created to strengthen the relationship between parties involved and act as a safety measure for receiving payment.
There are no federal or state statutes that regulate joint check agreements. Because of this, there are no defined guidelines that must be followed by law.
So, how are joint check agreements protected?
In the United States, all citizens have freedom of contract, meaning that you can generally draft up a legally binding agreement for anything as long as it is law-abiding.
Because there are no standard regulations for drafting joint check agreements, the agreement can be written in any format that all parties agree to. This is why if you search, “construction joint check agreement form” online, you’ll find a host of different sample agreements.
2 Things to Consider Concerning Joint Check Agreements
While there is no such thing as a construction joint check agreement form, there are some factors that you must consider very, very, carefully to avoid discrepancies/misunderstandings that can lead to non-payment.
Let’s discuss these factors in detail below.
#1: The Joint Check Rule
When it comes to depositing a joint check, beware of the “joint check rule”. This is especially important for material suppliers.
As a material supplier, endorsing and depositing a joint check is certifying that all amounts due have been paid in full up to the date of the joint check. Therefore, it is extremely important to make sure that you have been paid in full before cashing in a joint check.
Here’s an example scenario.
Let’s say you’re owed $80,000 for materials that you furnished to a subcontractor three months ago. You have yet to receive payment and may need to move forward with filing a mechanics lien.
To avoid this and offer some payment, the general contractor writes up a joint check for $65,000. It seems tempting to accept this check and proceed with collecting the remaining amount due separately.
Do not do this.
By signing and endorsing the joint check, you are waiving your rights to collect the remaining $15,000. Any mechanics lien or bond claim filed for the remaining debt owed will be considered invalid.
#2: Obligatory Terms vs. Permissive Terms
Another thing to look out for when it comes to construction joint check agreement forms is obligatory terms and permissive terms stated within the contract.
As mentioned before, there is no standard joint check agreement form, so parties can draft the agreement to their liking. Some joint check agreements obligate the responsible party to issue a joint check, and others merely give the responsible party permission to issue a joint check.
This is why it is important to read the joint check agreement carefully.
If you assume that the agreement obligates the responsible party to pay you when it in fact only permits the party to pay you, it could wind up becoming difficult to receive payment when the joint check ends up not being issued.
2 Instances When You May Need to Enforce a Joint Check Agreement
Typically, there are two instances where you may find yourself needing to enforce a joint check agreement:
- The joint payee won’t sign the check
- The owner or contractor fails to include you on the check
Let’s go over these instances in detail in the sections below.
#1: The Joint Payee Won’t Sign the Check
When there is a great line of communication between parties, the process of getting paid via a construction joint check agreement form is usually smooth. However, when communication and cooperation halt for whatever reason, the process can become challenging.
Perhaps one party feels entitled to remedies or payments that are in dispute. For example, the joint check only outlines a portion of the payment owed to the material supplier.
When one party refuses to endorse the joint check agreement, the entire process of issuing and receiving payment is delayed.
#2: The Owner or Contractor Fails to Include You on the Check
This is another instance where miscommunication or even intentional slights can halt the process of issuing and receiving payment via a joint check agreement.
Failure of the paying party to include your company name on the joint check violates the agreement.
All parties must be willing to cooperate to fix this issue, and the paying party may be reluctant to issue another check and pay for the materials twice.
How to Enforce a Joint Check Agreement
It is important to note that due to the unique nature of joint check agreements, there is no single, specific way to enforce a joint check agreement.
Therefore, we highly advise that you consult with a construction attorney on the best way to enforce your construction joint check agreement form to avoid any construction risks with your project.
Review and Follow the Procedures of the Joint Check Agreement
The first thing you’ll want to do is review the agreement. Make sure that you understand the terms outlined in the agreement and confirm that an actual violation has occurred.
It’s also important to note the contract’s enforcement terms, as some contracts can require formal methods of enforcement, such as:
- Cure periods or enforcement delay
- And more
One misstep with these procedures can end up costing you a lot of time and money and can even cost you your entire claim, so it is extremely important to get this step right.
Consider the Big Picture
Oftentimes, enforcing a joint check agreement is only a small factor in a dispute amongst contracted parties.
When it comes to enforcing a joint check agreement, make sure that you focus on the big picture and keep in mind all disputes when coming up with your legal plan.
Beware of Joint Check Fraud
When planning to enforce a joint check agreement, you’ll want to be hyper-aware of any potential fraud, including:
- Forged signatures on joint check agreements
- Forged endorsements on joint checks
Due to credit or cash flow problems, fraud can and does occur in the construction industry. A desperate subcontractor may fraudulently forge signatures or endorsements of a general contractor to secure payment from a joint check agreement.
To avoid being wrapped up in a situation like this, it is best practice to contact the general contractor involved and verify that they did in fact sign the joint check agreement and understand their obligations.
If you become aware that fraud has been committed, you should notify the general contractor immediately, so they can file a fraud report with their bank and try to have the payment reversed.
You also may need to take civil action against the subcontractor.
Let Flexbase Help You Manage Your Cash Flow and Paperwork
The amount of forms and paperwork involved in any construction project is immense.
Flexbase makes it easier to keep track of all your paperwork, including your construction joint check agreement form, in one easy-to-navigate digital space.
Additionally, we help ensure you get paid by sending out …
- Automatic payment reminders
- Notices; and
… as needed.
Contact us today to schedule a demo and see firsthand how Flexbase can help manage your cash flow and paperwork.