When a Subcontractor Is Not Paid by Contractor: What Can You Do?
It finally happened. The general contractor who hired you isn’t paying up.
If you’ve been around the construction business for very long, you know slow payment is all too common.
But what can you do?
If you’re dealing with builders who don’t pay subcontractors, we’re here to tell you there is hope.
Read on to learn what you can do and how to get a contractor to pay subcontractors.
Table of Contents
- Flexbase: Our AIA Billing Can Manage Your Cash Flow and Help Get You Paid Faster
- Builders Who Don’t Pay Subcontractors: 4 Reasons Why Payment May Be Late
- How Long Can a Contractor Wait to Pay a Subcontractor?
- Does Prompt Payment Act Apply to Subcontractors?
- What Can I Do if a Contractor Doesn’t Pay?
- Contractor Not Paying Subs: How You Can Avoid Late or Non-Payments From Contractors
- Say “Goodbye” to Non-Payment Issues: How Flexbase Can Help Solve Your Cash Flow Woes
Flexbase: Our AIA Billing Software Can Manage Your Cash Flow and Help Get You Paid Faster
What if there were a way to easily manage your construction business’s cash flow, so you could spend more time focusing on growing your company?
Welcome to Flexbase.
Flexbase offers a holistic cash flow management solution for construction companies just like yours.
If AIA billing is required for your job, Flexbase can automatically generate the AIA billing forms you need, which means that you can say goodbye to the headache of AIA billing for good.
With Flexbase you are able to:
- Provide invoices to clients
- Automate all of your payment processes
- Send out intelligent payment reminders and legal notices that are compliant with state and federal laws
- Have access to our automated construction invoice templates
- Gain quick access to your working capital anytime you need it
- Track all of your expenses
- And more
And Flexbase is entirely free to use, so you can put an end to paying for a monthly subscription you never use.
At Flexbase, we work on a small commission of 0.5%, and if you don’t get paid, neither do we.
Builders Who Don’t Pay Subcontractors: 4 Reasons Why Payment May Be Late
Let’s jump in and take a look at some reasons a subcontractor may not be paid by a contractor.
Reason #1: The Contractor Is Behind on Paying (and Playing Catch-Up)
It’s no secret that margins can be tight in the construction business.
As a general contractor’s bottom line gets tighter, you can almost bet their payments will get slower and slower.
Sometimes builders who don’t pay subcontractors do so because they need to keep a little bit of extra cash in the bank account in order to stay afloat.
Reason #2: The Contractor Goes Bankrupt
Sometimes the reason for a contractor not paying subs is due to the contractor declaring bankruptcy.
Since bankruptcy can be a sign that the contractor has a habit of stretching themselves too thin, it is always a good idea to do a little research into the contractor before partnering, to see if they have been through a recent bankruptcy.
Reason #3: The Contractor Is Dishonest
While it’s not something we want to think about, sometimes builders who don’t pay subcontractors are flat-out dishonest.
If you are new to an area or considering taking on a project under a new-to-you general contractor, ask around.
Word travels fast in the construction industry.
Pay attention to what other subcontractors have to say about the contractor’s credibility and payment record.
If other subs are talking trash about a contractor, chances are high that the job won’t be worth the headache of trying to get paid.
Reason #4: The Subcontractor’s Job Isn’t Complete or Is Unacceptable
Sometimes when a subcontractor is not paid by the contractor, it’s the sub’s fault.
If the subcontractor does not perform their portion of the project according to the standards outlined in the contract, the contractor has every legal right to withhold payment.
In the event that a sub doesn’t complete the work as contracted, a contractor is required to pay for work completed.
However, they are not required to pay the sub for the remainder of the job.
It’s important to note, however, that this only applies if the sub is at fault for poor quality work.
If the substandard work was performed due to another contributing factor beyond the subcontractor’s control, the contractor will most likely still be required to pay them.
How Long Can a Contractor Wait to Pay a Subcontractor?
If the project is complete, payment must be made within 30 days of invoice submission. Subsequently, depending on the laws of the state, the general contractor has 7 to 14 days from receipt of payment to pay subcontractors.
Does the Prompt Payment Act Apply to Subcontractors?
Yes, the Prompt Payment Act applies to subcontractors and is effective on all types of construction projects, including remodels.
What Can I Do if a Contractor Doesn’t Pay?
If a contractor does not pay, a subcontractor may file a mechanic’s lien through a surety company. The surety company will take the contractor to court to recover the owed wages.
Try to Resolve One Last Time Before Seeking Legal Aid
Before making the decision to file a mechanic’s lien, it is a good idea to get in touch with the general contractor one last time.
Send an email or give them a call to let them know of your desire to resolve the issue without formal legal proceedings, but that you are willing to take that step if needed.
This gives the benefit of the doubt, just in case the failure to pay is an honest mistake, such as an invoice that may have accidentally slipped through the cracks.
Ideally, this step may resolve the issue quickly and easily, while still preserving a positive working relationship.
File a Mechanics Lien With the Surety Company
If contacting the contractor for payment fails to produce a full paycheck, the best way for a sub to show a contractor they are serious about getting paid is to file a mechanic’s lien.
Filing a lien against the property makes the assets less liquid, and can create issues for future attempts to secure financing.
It will be critically important to keep in mind any deadlines that are imposed by your local lien statutes and to file your lien documents prior to the deadline.
Ideally, filing a mechanic’s lien will be all that is needed to light a fire under the general contractor and get payment taken care of.
Stay On Top of Payment Requests
Sometimes, even the best of general contractors may be slow in making payments.
This is where sending regular, friendly payment reminders can help by keeping your invoice front and center.
Suspend Work (As a Last Resort)
Finally, if a subcontractor has made every effort to receive payment from a general contractor to no avail, it may be time to stop working on the project.
In this situation, the sub would let the contractor know that work will remain suspended until full payment is received.
Since the legality of work suspensions vary by contract and by state, subs will want to consult legal counsel to learn if a suspension is allowed in their particular state and circumstance.
Contractor Not Paying Subs: How You Can Avoid Late or Non-Payments From Contractors
If you’re wanting to know how to get a contractor to pay a subcontractor, being proactive is a great start. Here are a few ideas for how you can plan ahead to improve your chances of being paid on time.
Have a Rockin’ Contract — And Know What’s in It
Before you sign on the dotted line with a general contractor, read through your contract — and then read it again.
Think carefully about everything that needs to be in your construction contract.
It should include the details of:
- The work that will be performed
- The materials to be used
- A timeline of completion; and
- Clauses that outline exactly how much — and when — the subcontractor will be paid
And add a clause that guarantees you receive payment regardless of whether the general contractor gets paid.
Be sure to avoid any contingency payment clauses such as, “pay-when-paid” or “pay-if-paid.” These state that the general contractor is not required to pay you unless (or until) they receive payment from the general contractor.
Make it clear that you expect to be paid no matter what.
A well-written contract is the single most important aspect in protecting rights in the instance a subcontractor is not paid by a contractor.
Effective documentation is the key to enforcing a construction contract.
A subcontractor will need to be well organized, so they can quickly and easily produce all work-related documents, including an accurate accounting of money owed by the general contractor.
Say “Goodbye” to Non-Payment Issues: How Flexbase Can Help Solve Your Cash Flow Woes
If you’re ready to put an end to non-payment issues, you need Flexbase.
The Flexbase app can make managing your construction business easier by:
- Requesting payments
- Communicating directly with your clients
- Improving cash flow
- Uploading and saving your important documents for quick, easy access
- Creating invoices and payment applications for each client
- Tracking multiple projects
- Monitoring your receipts
- Easily keeping track of materials used
- Filing lien notices
- And so much more
Schedule your free demo today.