Large construction projects are bid on by contractors, who then hire subcontractors to do 80–90% of the work. These subcontractors are experts in certain parts of the project, like carpentry or electrical work, and do only those things. If you run a small contracting business, there will be times when subcontractors don’t do what they were supposed to do. You can hold back payments from a subcontractor in certain situations, but you must make sure that these situations are legal and right, or you could end up owing a subcontractor a lot of money. If you aren’t sure, you should always talk to a lawyer.
You can hold back payments from a subcontractor in certain situations, but you must make sure that these situations are legal and right, or you could end up owing a subcontractor a lot of money.
The terms of the deal
Always write up a contract that both you and the subcontractor have to follow. If you or the subcontractor disagree about how much money is owed, you or the subcontractor must prove in court that the money should not be paid. Most states don’t have laws that say verbal agreements for business work are legally binding. If you don’t have a written contract, you can’t withhold payments from a subcontractor. If you do, you’ll lose the withheld money and have to pay extra fees to the subcontractor.
Liens to get paid back
Most of the time, you can’t ask a subcontractor not to pay you if the job you’re hired to do doesn’t pay you on time or at all. The subcontractor can put a mechanic’s lien on your property to get the money he is owed, and he can also sue you to get more money. There must be a pay-if-paid clause in the contract that says you won’t pay the subcontractor if you don’t get paid for a job.
Rules for Low-Quality Work
If the subcontractor doesn’t do the job as agreed upon in the contract, you still have to pay him for the work he’s already done, but you don’t have to pay him for the rest of the job. This rule only applies if the subcontractor did work that wasn’t up to par. If you or someone else caused delays on the job by doing a bad job, the subcontractor can sue you for the full amount of the job you gave him.
Not being on time
You can stop paying a subcontractor if he doesn’t finish the job in the time frame that was agreed upon in the contract. Most contracts have penalties for every day that a job isn’t done when it was supposed to be. Also, if you are a general contractor, you could get hurt. You can’t keep a subcontractor from getting paid for work they’ve already done, but you can hold back late fees and the cost of your damages until the issue is settled in court.