In part one, we discussed how important a comprehensive construction contract is for ensuring that an owner can fund a project through to completion. Below, we will continue by discussing how subcontractors too must take steps to ensure that an owner can pay, even when they have fewer resources than a general contractor. If you are facing a potential payment dispute, know that there are still options you can explore to secure payment, avoid litigation, and keep your project on schedule. For assistance resolving a payment dispute and, if necessary, filing a mechanic’s lien, consult a Chattanooga construction lawyer from Cotney Construction Law.
How Can Subcontractors Protect Themselves from Nonpayment?
Like general contractors, subcontractors must take steps to ascertain an owner’s financial stability. Unlike general contractors, however, subcontractors don’t have the benefit of contracting directly with an owner and have no grounds to demand proof of finances. They must instead rely on the willingness of the general contractor to request financial information. This is especially concerning for subcontractors that have signed pay-if-paid clauses, contingent payment provisions that could leave a subcontractor powerless to secure payment in the event that an owner is unable or outright refuses to pay a general contractor.
This doesn’t mean that subcontractors are without recourse. If you are required to furnish performance or payment bonds for a project, you could gain access to an owner’s financial information from the surety, who is certain to require financial information from an owner before assuming any risk on a project.
Protecting and Enforcing Your Right to Payment
As of the time of this writing, contingent payment clauses are still enforceable in the State of Tennessee. Contractors and subcontractors who fail to review their contracts and request financial evidence are only setting themselves up for failure. While requesting proof of an owner’s finances may seem like overstepping a boundary, it is no different from enforcing any other right allowed by your contract. In order to safeguard your business, you must be prepared to request financial information from all owners you do business with.
At Cotney Construction Law, our attorneys can draft and review your contracts to ensure the inclusion of provisions that allow you to request financial information from any owner. Additionally, we can provide alternative dispute resolution services to resolve your dispute without the need for a costly, drawn-out legal battle. Before you allow an owner to strike away contract provisions that could benefit your company, consult with the team of Chattanooga construction lawyers from Cotney Construction Law.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.