Why you should look at your contract terms on a construction job, how to add a stop work provision, how to secure your construction lien or bond rights, and when you have rights against a payment bond. Learn when to send a Notice to Owner and to record a Claim of Lien, a Notice of Nonpayment in lieu of a payment bond, and a Contractor’s Final Affidavit. Also learn how to check for guarantees, how to talk to your surety if you bonded the job, why you should provide a payment and performance bond, why you should document, and how to get ready for the fight to get paid.
- Step 2: Look at your contract terms
- Pro-tip #1: Add a stop work provision
- Step 3: Secure your lien or bond rights
- Step 4: Check for any guaranties
- Step 6: Document, document, document
- Step 7: Get ready for the fight
Step 1: What the Problem Is – Stopping Work
Let us say you are on a construction project, and you are not getting paid.
a. You are not getting paid
b. The belief that no matter what your contract says, you can stop work if you are not getting paid
There are many individuals that say they have not been paid in a few months, they are going to stop work, and that they have not been paid in a few months. They do not even know that they cannot stop work, and they assume that even when they sign their contract that the law always permitted them to have the right to stop work.
That is not the case.
Step 2: Look at Your Contract Terms
The next thing you need to do once you realize that you need to stop work because you are not getting paid is you have to look at your construction contract. What does your contract say with about the person who hired you?
a. What does your contract say about stopping?
In the construction industry, construction contracts include a contract provision that say you cannot stop work even if you are not getting paid. Many contracts that you sign will require you to keep working during any dispute including a dispute over late payments.
So the provision will say something like:
This means that no matter what, even if you are not getting paid, even if the change orders are not getting signed, even there are disputes on the job, you have to keep working. That also means you have to keep paying your employees, you have to keep the job running, you have to continue paying for materials on the construction project.
Most contracts that are seen, include a provision like the one above in your contract. So unless your contract is very short or you do not have a written agreement. Most reasonably sophisticated owners, contractors, and subcontractors are going to have provisions like this in their contract.
b. Is there a valid pay-when-paid provision in your contract?
On top of that, you may have a contract provision that requires that you cannot stop work or that you are not entitled to payment if the contractor has not been paid by the homeowner. That is also known as a pay-when-paid provision.
So if you have a pay-when-paid provision in your contract, that is not the legal basis for you to stop working. If the reason that you are not being paid is because the owner has not paid the contractor, and you have a pay-when-paid provision in your contract, you do not have the legal basis to stop working.
c. What does a pay-when-paid provision look like?
A pay-when-paid provision usually has the words ‘condition precedent or contingent upon,’ so it will say something like ‘payment from the owner is a condition precedent to payment to subcontractor,’ or it could say, ‘payment to subcontractor is contingent upon contractor’s receipt of payment from owner.’
Those underlined words, condition precedent or contingent upon, is the magic language that the courts are going to look for to see that your contract has a pay-when paid. So when you look at your contract, those are the two specific contract provisions that you need to focus on, to see if have a right to stop work.
The two things are (i) do you have a contract provision that precludes it or (ii) do you have a pay-when-paid and is the reason you are not being paid because the owner has not paid the contractor.
Pro-Tip #1: Add A Stop Work Provision
Now we have a pro-tip for you here. While it will not help you in the midst of a dispute, it will help you the next time you negotiate a contract. This is to include a stop work provision or stop work order, specifically that provision would say something like:
That is the sample provision. This is seen not just 30 days, but it can also be 60 days or 90 days after submission. But there is a period of time that if you are not being paid, you have the unequivocal right to stop work.
You should try to negotiate this into your contract the next time you are negotiating your contract. Sometimes contractors will say that they really want a job and that they know the contract is unfair. If there was only one change you could make, what would it be?
It would be adding the right to stop work to your contract. It is absolutely imperative that you have that right.
Step 3: Secure Your Lien or Bond Rights
Step three is securing your rights with liens and bonds. As you know, you have lien rights, and if you work on a project that is bonded by the contractor, you have rights against that payment bond.
As a quick refresher, it is good to review this with everybody.
a. Send Notice to Owner
The Notice to Owner needs to be served within 45 days of your first work or delivery of materials to the project. So in order to have lien rights, if you need to send a Notice to Owner, you need to make sure that that Notice to Owner is received by the homeowner and the contractor no later than 45 calendar days from when you first work. You can send it before, it just cannot be after.
When you use SunRay to do your notices, you want to make sure that those notices are timely entered into the SunRay system so that they are processed well before the 45 days.
b. Record Claim of Lien
You need to record your Claim of Lien no later than 90 days from your last work or delivery of materials to the project. If you have a construction bond claim, a claim against the payment bond, you need to serve that Notice of Nonpayment no later than 90 days.
This is 90 calendar days. You count all the weekends and legal holidays in between. If the 90th day happens to fall on a weekend or legal holiday, you go to the next day. That again is the outside deadline that you need to serve this document.
This applies to a construction bond claim as well. These need to be recorded in the public records where the project is located.
i. Ninety days is not three months
Ninety days is not three months. Again, if you are counting it out like July 15 and then August 15. If you count by the month, you have to remember that some months have 30 days, and some months have fewer than 30 days.
You need to make sure that you are actually counting the number of days
ii. Ninety days includes weekends and holidays
You need to include weekends and legal holidays as you count. Also know that you can record or serve your Notice of nonpayment before you finish the work. So you do not have to wait until you are done with the job or done with your work in order to serve a mechanic’s lien, record a lien, or serve a Notice of Nonpayment.
iv. Can be recorded/served before you finish work
You can do it in the midst of the project. Sometimes there are contractors who want to exert more leverage during the course of the project to get paid. So one of the things recommended is to go ahead and put a construction lien on the project today, and not to wait.
v. Last work does not include punch list or warranty work
A few other things to keep in mind is with the last work. When you calculate 90 days, it does not include punch list or warranty work.
vi. Last work does include approved change order work
It does, however, include any work pursuant to your contract including a change order so long as that change order work was approved and ideally signed as a change order.
vii. Those in direct contract with owner must serve Contractor’s Final Affidavit
If you have a direct contract with the owner, let us say you are a plumber, and the owner hires you directly or you are a general contractor, and the owner hires you directly. One of the other documents that you need to timely serve is called a Contractor’s Final Affidavit.
That needs to be served, not recorded at least five days before the lawsuit is filed to foreclose on the Claim of Lien. So if you are a general contractor, you have done work and you are owed money on the project, and you have not been paid, you need to record your Claim of Lien no later than 90 days for your last work.
Then at least five days before you file the lawsuit to foreclose on the Claim of Lien, you need to serve this document called the Contractor’s Final Affidavit.
It is a simple form, typically one page signed and notarized. It acknowledges that the other side is the contractor, or you are the owner, this is how much you are owed, and these are the other people who are still owed money.
c. File suit
The last deadline you to need to make sure you remember is that you need to file suit within one year of the recording date of the Claim of Lien, or no later than one year from your last date of work on a payment bond claim.
So notice that if you have a lien right, the time to file your lawsuit is a little bit longer because it is one year from the recording date of the Claim of Lien versus a bond claim where it is one year from your last work.
That being said, it is not recommended that you wait that long to bring your legal action to enforce your lien rights.
Step 4: Check for Any Guaranties
This is step number four before you decide to stop working.
a. Did you guaranty any debt, personally?
Check to see if there are any guaranties. Have you personally guarantied any money to anyone on the project?
If you are a subcontractor, say a mechanical subcontractor on a project, you may have ordered materials from a material supplier. To get those material supplies to the job, you may have had to sign a credit application. As part of that credit application, maybe you needed to sign personally to guaranty that debt.
Those are the types of things you need to be aware of to make sure that you know exactly what obligations you have in order to make sure that when you take the step of stopping work you know anyone who may come after you. You also want to know who they will come after.
b. Did you personally guaranty performance in your contract?
You may think that it does not matter if you stop construction work and if everything goes bad, you will just close the business. But you then remember that you actually personally guarantied $250,000 worth of materials that are delivered to the job site, so if you stop paying those folks that have the guaranty, they are going to come after you.
Again, it may not change your decision. But the important thing is that you are aware of the situation.
Step #5: If You Bonded the Job, Talk to Your Surety
As you know, some owners will require the contractor to provide a Payment and Performance Bond on some public work. This is pretty common on private work.
a. Did you provide a Payment and Performance Bond?
Occasionally, general contractors will require subcontractors to issue a bond back to them and sometimes even back to the owner.
To the extent that you provided a Payment and Performance bond, you need to know that your surety on that bond may have an obligation if you stop working. So if you do not continue to work, the contractor or owner can make a claim against the surety’s Payment and Performance Bond. That Payment and Performance Bond surety is going to step in.
b. What are the terms of the bonds and did you personally guaranty the bonds?
Now as you may know, in order to get that Payment and Performance Bond, you probably need to personally guaranty that obligation to the surety. You and your spouse may have had that obligation.
c. Do not surprise your surety
So, if you are going to stop work, (i) what are the obligations you have to your surety and (ii) under no circumstances should you surprise your surety and walk off the job.
Securities hate surprises.
For example, if someone is a general contractor on a multi-million-dollar public project, they are having significant issues with the public owner, just getting decisions made, and the job is now 18 months past its original completion date.
The general contractor is losing a lot of money just to keep the job rolling because hardly anything is happening. The general contractor wants to stop working and he bonded the project, because it is a multi-million-dollar public job. So we are talking about what his surety may do and the recourse that they have if he stops working, and if the public owner makes a claim on his performance bond.
Again, it may not change your mind. But the important thing is that you do not find yourself in a situation where you are surprised.
You do not want to think at a later time that if you had known the surety would come after you, that you would not have stopped working and you would have kept going.
Step #6: Document, Document, Document
It is absolutely critical that you have documentation of what has gone on in the project and why you are stopping work.
a. How well have you documented issues on the site?
The more documentation you have, the better off your situation is going to be. If you have emails that talk about the problem, or pictures, videos, those are important.
b. What do the meeting minutes say?
Meeting minutes are a very interesting tool that can be used if you plan ahead. So, as a contractor on a project, whoever is in control of the meeting minutes, that is, whoever is the party that is creating the minutes has the ability to create the narrative.
Because what will happen is 12, 18, or 24 months later when a court is actually looking at these meeting minutes, they are going to believe that what is referenced in the meeting minutes actually happened.
So there are two thing you need to remember about meeting minutes:
i. Do the meeting minutes properly reflect what happened during the meeting?
Sometimes things happen in the meeting that never happen in the meeting minutes. So when you get a copy of the meeting minutes after the meeting, you need to make sure they are accurate.
If you are not getting copies of the meeting minutes, either because you are not in the distribution list or no one is sending you those meeting minutes, you should send an email saying that you were at the meeting and that you want to know who is sending out the meeting minutes so that you can review them.
If no one is sending out meeting minutes and you are not receiving them, you need to send an email to the party that ran the meeting, documenting the things you believe are important, that happened in the meeting. So effectively you are creating your own set of meeting minutes and you are sending them back to the party that ran the meeting.
Typically, that is the party that contracted you.
ii. If the meeting minutes are incorrect
If the meeting minutes are incorrect, it is critical that you correct those mistakes. So if everyone says they are going to show up over the weekend to work and they are going to bring at least five people each, but in the meeting, they say that you did not have to because there is no work for you, you need to get the meeting minutes.
Once you get the meeting minutes and you see that they do not reflect the above, then you need to send an email that says the meeting minutes do not correctly reflect that you were excused from this. Having that clarification and some other paper trail of what your position is, is important.
c. Comply with all notice provisions in your contract
Finally, with respect to documentation, look at your contract and do all of the things that are required by the notice provisions in your contract. So if they say you have to send notice within 72 hours via certified mail. You need to make sure you do that if it has to go via email and overnight mail no later than seven days.
You have to do that so look at your contract and if you are going to put people on notice of any issue that happened during the job, you need to comply with those notice provisions. Both with respect to the timing of it, and number (i) and Number (ii) with respect to the manner of service.
You can serve it many additional ways, but if they say that John Smith has to receive it via certified mail at this address, you need to make sure that you can email it to anybody you want. But that person gets it the way the contract requires.
Get Ready for the Fight
The last step is step number 7 which is to get ready for the fight.
a. Stopping work and demobilizing is a drastic move
When you are going to walk off a project, know that it is going to create a lot of havoc. It is a drastic move, stopping work and demobilizing is a drastic move. It should really only be used as an absolute last resort.
b. Avoid it if you can, financially
If you can avoid it, you should try to avoid it. Now it should be easy for you to say that you are not the one that has to pay your pay roll and write checks for your suppliers. But there is a way to finish the project and have this fight later, it is better to do that.
c. Be ready for exorbitant back charges
The reason is that the moment you demobilize and stop working on the project, whoever hired you, whether that is the owner because you are the general contractor, the general contractor because you are a subcontractor, or the subcontractor because you are a sub-subcontractor, the amount of back charges you are going to receive is going to be exorbitant.
Every little thing is going to get charged to you pursuant to either your contract or just general Florida law.
If, for example, you think you had $50,000 worth of work left to do, you should not be surprised if you receive back charges of close to $100,000. So just know that if you are close to the end of the job and you can get it done, it is advised generally to try to finish it and then have the fight because it will mitigate the damage that the other side is going to assert against you.
d. Consult experienced legal counsel first
You need to consult a legal expert in this field before you take the plunge. People will say they are upset, owed money, and that they have a letter from a lawyer for the other side because they walked off three weeks ago. It is not that there is nothing that can be done, but it is just a lot easier and there are a lot more options if you go to a legal expert in this field before you pull the trigger rather than after.
e. Get ready for the legal fight
But if you decide to make the move, you are going to do this, and you are going to stop working, you just need to be ready for the legal fight that will come because it is highly unlikely that demobilizing from a job will result in the owner, contractor, or subcontractor not pursuing you.
It is possible that maybe they are holding enough money back and therefore it is not a big deal. So they will just back charge you. They are holding enough to make them whole. If you are not looking to get that money and you just want to move on, there are ways that it may work.
Most of the time when you walk off the job, there are going to be problems afterwards.
THE INFORMATION ON THIS WEBPAGE IS NOT THE SAME AS LEGAL ADVICE. SUNRAY CONSTRUCTION SOLUTIONS, LLC IS NOT AN ATTORNEY OR A LAW FIRM. WE RECOMMEND THAT YOU CONSULT WITH AN ATTORNEY.