This 6-part blog comes from a webinar presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in the state of Florida.
The six parts in this series include the following:
Part 1: Construction contract basics
Part 2: Notice to Owner do’s and don’ts
Part 5: Lien law traps to avoid
Part 6: How to get paid faster
In this blog, the following points will be discussed:
This is the final section of our six-part series. We will discuss how you can get paid faster.
Can I Stop Working if I Am Not Paid?
A lot of people ask if they can stop work if they are not getting paid. The answer is that, it depends.
a. It depends (and be very careful)
It should be undertaken very carefully if you decide to stop work after receiving a stop work order if you are not paid.
b. What does your contract say?
The first thing you need to look at is what does your contract say? Below is a sentence found in many contracts that forces you to keep working:
Subcontractor shall diligently proceed with the work during any dispute, even as it relates to payment or changes. The existence of a dispute shall not be grounds for any failure to perform by subcontractor.
So if there is a sentence like this in your contract, you are obligated to keep working even if you have not been paid.
c. Try to negotiate a ‘stop work’ provision into the contract
You can try to add in the right to stop work. That would look something like this:
Subcontractor can slow or stop work without liability or penalty if it has not been paid its draw request in 30 days after submission.
So, can you stop work? Maybe, but you have to look at your contract first.
d. Is there a valid ‘pay-when-paid' clause?
You may say as a subcontractor or sub-subcontractor that you are not going to work because you have not been paid, and that they are in breach of the contract. Even if it does not have that obligation to continue working, if you have a pay-when-provision in your contract, and your contractor is not paying you because they have not been paid, they are not technically in breach of contract.
Learn more about pay-when-paid provision: Pay-When-Paid Sucks, So Do This to Get Paid Anyway
e. Use magic language like ‘condition precedent’ or ‘contingent upon’
Again, remember that the magic language of ‘condition precedent’ or ‘contingent upon’ has to be in that pay-when-paid provision to make it enforceable.
f. Have you secured your lien or bond rights?
Before you consider stopping work, you need to know if you have secured any lien or bond rights. Because once you leave the job, your 90 days to lien or serve a Notice of Nonpayment using the statutory form is going to start running, since that is the last day of your work.
g. What personal financial obligations do you have?
You need to know if you have any personal financial obligations, such as a personal guarantee with any suppliers or a general indemnity agreement with your surety. If you do, just know that those obligations will exist even after you stop working on the job. And you have personal liability. This is not to say that you do not ultimately decide to stop work through a stop work order, we just advise you that before you make this significant move, that you have an understanding of the lay of the land.
This ensures that you make an informed decision before you pull the trigger, and not find out afterwards that had you known you issued a bond with a personal guarantee and four of your suppliers have a guarantee with you, that you would not have stopped working on the job.
Again, it is so that you have your eyes open before you make a move.
h. Consult with a construction attorney first
It is strongly encouraged that before you make any move like this that you talk to a seasoned construction lawyer who can guide you through the process and tell you what stopping work looks like.
i. Document, document, document
If the reason you are stopping work is because of things unrelated to you on the job, you need to make sure that you have ample documentation to support it such as emails, meeting minutes, videos, and photos. This is critical information that can be used later.
j. If you are bonded, notify your surety first
If you actually bonded the job, like if you are a bonded contractor or bonded subcontractor, you need to make sure that you notify your surety. You do not want your surety to find out that you have left the job before you tell them. You do not want them to get a Notice of Default before you tell them what you are going to do.
k. Be ready for the fallout
Be ready for the fallout. It is obviously going to be a very contentious situation if you leave the job. So you just need to prepare for all the things that could happen. Again, the idea is to be aware of the groundwork in front of you of what you are going to face if you leave the job.
Can I Take My Materials Back If I Am Not Paid?
Yes, but only if the materials were not installed and not paid for by the owner. So, you may not have been paid but if the owner paid the contractor for them and they were delivered to the job site, you technically cannot take them.
a. Lienor does not ‘breach the peace’ during repossession
You also cannot take them if in the process of taking them, you are going to do what is called ‘breach the peace’ during repossession. So, if you have 10 palettes of materials, and you do not have to break a lock or open a fence, and you can just go and drive onto the property and take what is yours, then that does not constitute breaching the peace.
But if you need to have bolt cutters to open up the fence to get your stuff back, or if it has been installed or delivered to the job site or is uncrated and partially installed on the project. All of that is going to be problematic.
b. Lienor credits back the full purchase price of the repossessed materials
You also have to give back the credit for the full purchased price of the repossessed materials. So, where we see this happen for supply houses, the issue is that when they want to take material back, they say that they have restocking fee. If you have a restocking fee, you cannot credit back everything but the restocking fee. You have to credit back everything.
For example, let us assume you have electric switchgear or custom plumbing fixtures. If the manufacturer is only going to give you 70% when you return it, if you pick it up, you are, let us say going to have to credit $100,000 back to your customer. But you are only going to get $70,000 back. Now you have to make a decision on whether or not you want to do that.
There are certain avenues in which you can give credit back to the owner on the lien, but you still make the claim to your customer under your credit application for the restocking fee.
c. If the materials are not worth the credit, then do not repossess
If you are prevented from the repossession, or you have to breach the peace, then you have to file a lawsuit to get your stuff back. This is called ‘replevin.’
d. If the lienor is prevented from repossession or he must ‘breach the peace,’ then he must sue for replevin
If you are prevented from repossession or you have to ‘breach the peace,’ then you must file a lawsuit to get your stuff back, which is called replevin. This means you cannot just go take it back yourself, you have to file a lawsuit to go get it back. And the court will, in many instances give you permission so long as you can show that it is your stuff, and it has not been paid for by anybody.
If I Have to Hire a Lawyer, Can I Recover My Legal Fees and Costs?
In Florida, there are only two ways to recover your legal fees.
a. Sue the other party for violating a statute and that statute grants the prevailing party their legal fees
The first way is by suing someone for violating the statute and that statute says the winner gets their legal fees. So the lien statute and the bond statute have the right to recover legal fees.
b. Sue on a written contract that allows the winner to recover legal fees
The second way is if you file a lawsuit for a breach of written agreement and that agreement says that the prevailing party is entitled to recover their legal fees. This is why it is important to have a written agreement instead of an oral agreement. At the judge’s discretion, you should be able to recover your legal fees.
Sample provision to recover legal fees
Here is a sample provision to include in your contract to recover your legal fees:
The prevailing party in any action to enforce this agreement shall be entitled to recover its costs and expenses of collection, suit, or other legal action, including all actual attorney’s and paralegal fees, from the non-prevailing party.
So, if you have a provision that looks something like this in your agreement, you can recover your legal fees. If, however, you have a written agreement that does not say this, or you have no written agreement at all (like an oral agreement), then you will not be entitled to recover your legal fees if you sue for breach of contract or you are sued for breach of contract.
Once I record a lien, what happens next?
a. The lien only starts the process
As mentioned before, the lien only starts the process.
b. You have one year from the recording date to file suit to foreclose
You have one year from the recording date of the lien to file lawsuit to foreclose. But there are ways for that to be shortened.
c. Practice the 60/60 rule
It is strongly suggested that you follow what we call the 60/60 rule. No later than 60 days from your last work on the project, is when you need to start the process of putting together your lien. It takes time, so do not wait until the 85th or 89th day when everyone will be running around like crazy.
Start early. Get the paperwork together and know that in many jurisdictions at the height of the pandemic, it was taking the clerk of court seven days to electronically record liens. You would need to submit it and just wait before the lien actually got recorded. So, the date that matters is not the date that you submit it, it is the date that it is recorded.
For 60 days thereafter, you need to hassle your customer, the owner, and contractor for payment. Use emails, calls, voicemails, and show up in their office. Do whatever you can for the next 60 days after recording your lien to try and get paid.
d. Submit the claim to a construction lawyer for collection
If it does not work even then, that is when you should submit it to a construction lawyer. It is rare that a case gets better just by waiting. This means that once you record the lien and you have tried everything you can for a month or two to get paid, if you have not been successful, unless you have a specific business reason to keep waiting to get paid, you should turn it over to a construction lawyer to get paid. Because that is when people’s minds are fresh and when the facts are most fresh in everyone’s minds.
There are cases in which people have retired, moved away, witnesses have died, etc. And that makes it very hard to litigate your case.
I Sent My Notice of Nonpayment to the Surety. When Will they Pay Me?
Similarly for Notices of Nonpayment, this notice only starts the process for you to get paid.
a. Claimant receives a letter asking for information and ‘Proof of Claim’
The claimant typically receives something called a Proof of Claim in the mail.
b. No obligation in Florida to provide the POC
There is no obligation in Florida to fill out this claim. You can if you want, but it does not materially increase the likelihood of getting paid just because you filled it out.
c. In most instances, do not provide the POC
In most instances, we advise against providing the Proof of Claim. This is because most sureties use the Proof of Claim to deny a claim, not as a reason to accept it.
d. Most sureties will not pay you unless the principal agrees first
Most sureties will not pay you unless the bonded contractor/principal agrees to pay you first. This is because the sureties are indemnified by their principal. It is not insurance, it is suretyship meaning that if the surety writes the check to you, the principal is going to have to write a check back to the surety if the principal is agreeable first.
e. Watch out for a shortening of your claim period or the surety waiting you out
Be careful because these periods can be shortened. You have one year from your last work to file the lawsuit, but these periods can be shortened by you receiving certain documents.
f. Practice the 60/60 rule
Similar to the Claim of Lien, it is recommended that you practice the 60/60 rule. Sixty days from your last work you submit the Notice of Nonpayment. For the next 60 days after that, you hassle your customer and the surety for payment. Be aggressive, be annoying, because that is what is going to get you paid.
g. Submit the claim to a construction lawyer for collection
But if it does not work after those 60 days, that is when you should submit the claim to a construction lawyer for collection. Your case is not going to get better because you decided to wait really close to the deadline.
h. Except for business reasons, do not delay
Except for specific reasons, like if it is a small job, and you have five others going with the same contractor, unless you have a good business reason to delay, you should not.
My Lien Was Bonded Off! Now What?
You should celebrate! This is what happens next:
A lien on property requires a foreclosure sale and recovery is subject to the sale price and any prior encumbrances
A lien on a property requires a foreclosure sale, which means that any recovery is subject to the sale price at foreclosure and any prior encumbrances like a mortgage or a lien. That only leaves you with any equity that is left in the property.
Once bonded off, the lien is attached to either a surety bond or cash held by the clerk
Once it is bonded off, that lien attaches to the surety or cash bond held by the clerk.
The bond amount is 150% of the claim of lien
Or they need to take $150,000 in cash and give it to the clerk, so that money sits there.
Prepare for a fight
You should be prepared to fight. Almost always, when a lien is bonded off, that is when someone does not want to pay you. Because if they wanted to resolve it, they would not go through the effort to bond it off. They would pick up the phone, call you, and try to work things out.