A Subcontractor’ Step-by-Step Guide to Getting Paid (Faster) - Webinar

In this blog, presented by SunRay Construction Solutions and Alex Barthet, Principal, The Barthet Firm, find out what are those key steps and action items that subcontractors in Florida should pay attention to overcome their payment issues quickly and successfully.

Step 1 – Your Contract

So, step one is to focus on your contract. One of the most problematic provisions included in your contract is the ‘pay-when-paid’ provision. What does this provision mean?

• If you have a pay-when-paid provision in your contract, and if the owner doesn’t pay the contractor, then the contractor is not obligated to pay you as the subcontractor. It means that the risk of non-payment from the contractor is shifted to the sub-contractor.
• This is a legal defense, and it is valid and enforceable in Florida.

This is a very important condition which can result in huge problems for the subcontractor. Even if you have done everything correctly, provided all the labor/materials on time, finished the work on time, etc., if your contract has this provision, then the contractor doesn’t have to pay you. Hence, it is really important to know how to fix and deal with this problem. Here are a couple of ways to deal with it:

• When you are presented with a contract, the first thing you need to check is (before you sign the contract) is whether you can make changes to it. You need to check if you can strike or modify the provisions listed.
• Next step is to add a ‘stop work’ provision. Most of the contracts have a provision which states that you need to continue doing your work even if you are not paid. So, you need to check if you can add a provision of ‘stop work’.
• Next, you need to check if you have your lien/bond rights. These rights are irrespective of the pay-when-paid provision. This means that even if the owner has not made the payments, you can still lien the project and overcome this pay-when-paid clause.

Let’s take a closer look at the ‘Stop Work’ Provision. The most common provision that you would see in contracts is:

• “Subcontractor shall not be entitled to stop the work on account of a Contractor’s Default, including nonpayment, but shall proceed with the dispute resolution procedures in this Agreement.”

What this means is that even if there is a disagreement, or you are not paid, or arguments about your change orders, you need to continue working on the project. To overcome this, you can add a provision to your subcontractor contract, stating that:

• “Subcontractor may slow or suspend work if any payment requests have not been paid in full within thirty calendar days from submission.”

It essentially means that if you don’t get paid, you can stop work on the project. But remember that it does not eliminate the pay-when-paid provision, or it does not mean that they have to pay you. All it allows you to do is stop working on the project if you are not paid.

So, if there is any one change that you can make to your contract, then it should be the inclusion of the ‘stop work’ provision.

Let’s take a closer look at how lien/bond claims can help you.

• Payment Bond – If a job is bonded (public project or a private project where the GC got a payment bond), the surety is not entitled to the pay-when-paid defense. This means that your contract with the general contractor may say that the contractor doesn’t have to pay you if the owner doesn’t pay the contractor, but they issued a payment bond. But this payment bond does not have the pay-when-paid clause which means that you may still have rights against the general contractor.

This is why it is extremely important for you as a subcontractor to timely secure your bond rights so that you can get paid by the surety even if the contractor doesn’t have to pay.

• Claim of Lien – If you have lien rights, then the owner cannot assert the pay-when-paid defense because the pay-when-paid provision exists in the contract that you have with the contractor and not between the subcontractor and the owner.

This is why it is important for you to secure your lien rights in a timely manner so that you can ensure that you get paid even if you have the pay-when-paid provision in the contract.  

ContractDetective

ContractDetective is a free tool that can help you in identifying dangerous provisions in your contract. All you need to do is go to Contractdetective.com, upload your construction contract and in about 90 seconds, it will send you back a highlighted version of your contract, identifying the top 10 most dangerous contract provisions in your contract.  

So liquidated damages, consequential damages pay when paid, indemnity, those types of provisions will be highlighted, and then a link to a short video and an article is also included describing each of those provisions, and ways that you can change those provisions to better protect yourself.

Step 2 – Secure Your Lien Rights

Making sure that you have lien rights is a great way to ensure you’re going to get paid as a subcontractor. You have lien rights as a subcontractor if the contract price between the owner and the contractor exceeds $2500. There are quite a few deadlines that you need to adhere to, such as:

• You need to serve a Notice to Owner on all interested parties no later than 45 days from the first labor or furnishing of materials as per the contract. This means that the Notice should be received by the 45^th day, so make sure you serve it soon.
• The next deadline to consider is that you need to record a claim of lien no later than 90 days from the last day of service or material delivery.  
• A copy of the claim of lien should be served to all the interested parties within 15 days of recording it.  
• Finally, you need to file a lawsuit to foreclose on the lien no later than 1 year from the date of recording the claim of lien. If you don’t file that lawsuit within one year, you will lose your lien rights, meaning the lien will automatically expire.

Here are some of the common traps to avoid:

• All days (45 days, 90 days, etc.) are calendar days. So, you need to be careful when you calculate the days because some months have more than 30 days and some fewer than 30 days. Make sure that you calculate the exact calendar days.
• Warranty and punch list work is not your ‘last work’. The last day of the work is the last day that you did real, substantive work pursuant to your contracts.  
• The deadline to file your lawsuit, which is one year, can be reduced to 60 days by a Notice of Contest or to 20 days by a Summons to Show Cause. So, you need to be aware that you may receive things in your email, or you may be served things by a process server and those things are very important to deal with, because they will shorten the time that you have to file your lawsuit.

Calc-U-Lien

This is another free tool, and you can use this tool to calculate the 45 days from your first work for your notice to owner, and your 90 days from your last work for your claim of lien. You can visit the website calculien.com, fill in all the details and you will get it back via email within a few days.

Step 3 – Secure Your Bond Rights

The next step is securing your bond rights. If the project is bonded, making a claim on the payment bond prevents the contractor from and the surety from asserting the pay-when-paid defense.

• A payment bond is a financial instrument that is issued to ensure that you get paid. So, rather than having a lien on the property, you will have a legal claim on the surety bond.
• So, how do you know if the job is bonded? A copy of the bond should be recorded in the public record and if the job requires a Notice of Commencement, then a reference to the bond should be made in the Notice of Commencement and a copy of the bond should also be attached.  

Here are some of the key steps that you need to follow to secure your bond rights:

• Notice to Contractor – The first document that needs to be served is the Notice to Contractor. If you do not have a direct contract with the bonded contractor, then you need to serve the Notice to Contractor within 45 days from your first work or delivery of materials on the project.  
• Notice of Nonpayment – The next document that needs to be served is the Notice of Nonpayment. You need to sign, notarize, and serve it to the contractor and surety within 90 days from your last day of work or delivery of materials on the job site.  
• Filing a Lawsuit – Finally, you need to ensure that you file your lawsuit within one year from the last day that you performed work or delivered materials on the project.

A key point to remember here is that when dealing with lien claims, you need to file your lawsuit within one year from the date of recording your claim of lien whereas when dealing with bond claims, you need to file the lawsuit within one year from your last day of work/delivery of material on the project.

Here are some common traps to avoid:

• The 45 days to serve the Notice to Contractor does not start to run until:
• If a notice of commencement is not recorded,
• If reference to the bond is not provided in the notice of commencement, or
• If the lienor is not otherwise notified in writing about the existence of the bond.

So, remember that there are ways to recover, even when you think you may not have followed the rules, because there’s an exception that may apply.

Lien-O-Matic

Lien-O-Matic is another free tool that you can use. This tool will explain what you have to file and when you have to file it, to secure all your lien rights and bond claims. You just need to visit LienOMatic.com, provide the required information and you will receive all the details back for free.

Step 4 – Exchange Releases Correctly

One of the most common mistakes that people make is in the way they exchange the releases.  

• Chapter 713 which is the lien stature has a standard lien release form which is very simple and easy to use. But there are two exceptions to using this form:
• Does the contract require a specific form of waiver? Most of the contracts typically have a reference to an exhibit in the contract stating that when you make a payment request, you will use the release form found in that particular exhibit. And more often than not, if they are giving you a form of release, then it is probably in their favor.

So, you need to make sure that you read that document carefully and determine whether you agree with it or not.

• The other exception is the “Golden Rule” which means that he who has gold, will make the rules. So, contractors may say that if you want your money, you need to sign this particular document. It comes down to you taking a business decision after carefully considering all the options.

Ideally, if you can include in your contract the form of release that you agree on, it will speed up the process of getting paid.  

Here are some of the common traps that you may across with respect to exchanging releases:

• Is the waiver for a sum certain or a period of time? Remember that the date almost always controls over the amount in the release.

For example, if you're expecting a $50,000 check that gets you paid through the end of the month and you only get a check for $20,000 but you sign the release, then you will have a problem because this document says that you are releasing all of your rights through the end of the month for $20,000.

So, what you can do is change the release to reference that if you are only being paid $20,000, then you not releasing it through the end of the month. You have to be very careful that the through date of the release matches the amount of money that you are expecting for that period of time.

• Another common trap is the tile of the release. Just because the tile mentions that it is ‘partial’ does not mean that it is a partial release. You need to read the entire release to understand what type of release it is. Don’t just rely on the title of the release.

• Have you carved out any rights for retainage, pending claims, delays, etc. in the release? If you believe that you have rights for a delay claim, unapproved change orders, etc., you need to exclude them from all your releases.

• The last mistake that people typically make is related to conditional releases. If you give a release and it is not conditioned on you receiving the money, then what happens is that you have given up your lien rights even though you have not received the payment. The best way to deal with this is to add a conditional release language in your release stating that:
• “This Release is conditioned upon payment of $_______ and is not effective until said amount is received in paid funds by the undersigned.”

MakeMeConditionalStamp

The last free tool that you can use is the MakeMeConditionalStamp. All you need to do is go to the website MakeMeConditional.com and make a stamp of the conditional language. You can then just stamp it on the release and if you never get the check, then, you don't have to worry because you've made the release conditioned on you actually getting the funds.

So, these are some of the key steps that you should focus on as a subcontractor to ensure that you get paid quickly and successfully on a construction project.  

Need help? Use our system to seamlessly protect your lien rights. Contact our experts at 800-403-7660 for legal assistance. Stay ahead in handling your lien and notices with SunRay!