By Leslie A. Boe, Dysart Taylor McMonigle Brumitt & Wilcox, P.C.

The construction contract has always been the subcontractor’s rulebook, and it still is.  If the subcontract said you wouldn’t be paid until the owner paid the general, you waited.  If it said you waived your lien rights, or that your retainage would sit until the end of the job, you may have signed and hoped for the best.  What has changed is that the contract no longer works alone.  Laws in many states now determine whether some of those terms are enforceable and what rights you have, even if the subcontract says otherwise.  My advice is simple: keep negotiating your subcontract terms, but know what the law already gives you.  That knowledge can strengthen your negotiating position, help preserve claims, and improve your chances of getting paid.  Those who don’t understand the law may be conceding points they never had to, or losing rights simply because they didn’t know they had them.

Below are the legal trends I see having the greatest practical impact on subcontractors today, and what you should be doing about each one.  My practice is centered in Kansas and Missouri, so many of my examples come from there, but the trends they illustrate are playing out nationwide.

Start Strong: Know What the Law Already Gives You

Every subcontractor knows the feeling of reviewing a subcontract filled with provisions that place a disproportionate share of the project’s risks on the subcontractor, while leaving the general contractor with comparatively little exposure.  The good news is that some of those clauses may not be enforceable at all.  A growing number of states have passed laws that refuse to enforce the harshest terms, such as clauses requiring you to waive lien or bond rights before you’re paid, or waiving delay damages on public work when the owner caused the delay.  In Kansas and Missouri, where I practice, several of these clauses are simply void.  Before you give up a point in negotiation, or decide a claim isn’t worth pursuing, find out whether the law has already settled that issue in your favor.

Getting Paid: Know Which Laws Are on Your Side

Payment uncertainty is one of the biggest stressors in our industry, but the law increasingly gives subcontractors real protection.  Many states have prompt payment statutes that set deadlines for paying you after the general contractor is paid, add interest or penalties when payment is late, and often let the winning party recover attorney’s fees.

That last protection matters more than it might seem.  Litigation is expensive, and the possibility of paying your attorney’s fees on top of the balance and interest gives a general contractor a strong reason to resolve a legitimate claim before it gets that far.  Just remember that fee-shifting usually works both ways, so make sure your claim is solid before you lean on it.

Some laws go even further.  In Kansas, if an undisputed payment is late under the statutory timeframe, after the required notice period, you can suspend work and recover your reasonable costs of demobilization, delay, and remobilization.  But not every state offers this right, and walking off a project without protection under the law or your subcontract can put you in breach, so confirm that your state’s law or your subcontract allows it before suspending work.

The release of retainage is getting attention from lawmakers as well.  In Missouri, retainage on private commercial work is held in trust for the subcontractors who earned it and must be released within set deadlines after substantial completion.  On a $500,000 subcontract, every point of retainage is $5,000 of your money sitting in someone else’s account.  You may not have to leave that cash on the table at all.  Missouri lets you substitute a certificate of deposit, retainage bond, or letter of credit for cash retainage, and on Kansas public projects you can request alternate security before work begins.  If your trade finishes early, such as sitework, you may be able to get your retainage released before the whole job is done.  Kansas allows early release on public work as well.  Check your statute and pursue your right to early release if it’s available to you.

Pay-if-Paid: Know How Your State Treats It

Prompt payment laws generally don’t rewrite the payment terms you agreed to.  An enforceable “pay-if-paid” clause may still control when (and whether) you get paid, which is why it is still important to negotiate for “pay-when-paid” language.

States treat these clauses very differently, so it is important to understand the law of the state that governs your project.  In a handful of states, including California, New York, and North Carolina, pay-if-paid clauses are unenforceable.  In most others, they are enforced only if the contract clearly makes payment by the owner a condition of paying you; an unclear clause is usually treated as pay-when-paid.  Others, like Kansas and Missouri, enforce the clause but limit its reach.  In Missouri, it can’t defeat your mechanic’s lien, but no statute protects your payment bond claim.  On a public project, where the bond is your safety net, that’s a real gap.  Kansas protects your lien and statutory bond claims, including on public projects.

For a state-by-state breakdown, the Foundation of the American Subcontractors Association publishes Contingent Payment Clauses in the 50 States.  Before signing a pay-if-paid clause, know whether your state’s law will enforce it and what rights you may still have if the owner doesn’t pay.

Stay Strong: Know the Steps You Have to Follow

New protections are only valuable if you follow the steps to use them.  Lien rights are the best example.  They remain one of the most powerful tools a subcontractor has, but every notice and deadline must be followed exactly.  In Missouri, for instance, a subcontractor must give the owner ten days’ notice before filing a lien, and Kansas has its own filing deadlines.  Some states even require notice at the very start of a job, long before anyone expects a payment problem.  Miss one step, and the lien may be lost.

The solution is building good habits into your business and making sure your team follows them.  Build these six habits into your project management procedures:

• Know the rules before you sign.  Find out whether the project is public or private and which state’s laws apply; if you work in several states, don’t assume the rules carry over.
• Ask for the prime contract and the payment bond at the start.  Flow-down clauses can bind you to terms you’ve never seen, and bond claim deadlines are often found only in the bond itself.
• Track every deadline.  Calendar alerts, project software, or a simple spreadsheet will keep notice, lien, and bond deadlines from slipping.
• Read every waiver before you sign it.  Sign waivers tied to payment you have actually received, and strike broad or unconditional waivers of your lien and bond rights.
• Educate project managers, superintendents, and on-site personnel.  Make sure everyone representing your company on the project knows the contract requirements, when notices must be given, and how to give them.
• Document the project.  Daily reports, photos, and professional emails are what turn your legal rights into payment.

The Bottom Line

While more laws are starting to limit how much risk general contractors can shift onto subcontractors, these protections only help those who know about them and follow the rules for preserving them.  Your subcontract is still your rulebook; it just isn’t the only one anymore.  Review your standard terms, waiver forms, and notice procedures with the laws of the states where you work in mind.  What I see in Kansas and Missouri is part of a national trend, and similar protections may already exist, or may be coming, in your state.  In a changing legal landscape, the subcontractors who stay informed are best positioned to leverage their knowledge and protect their rights.

About the Author

Leslie A. Boe is a Shareholder and Director at Dysart Taylor McMonigle Brumitt & Wilcox, P.C., where she advises subcontractors and other construction industry professionals on contract negotiations, risk management, payment disputes, and construction claims.  She emphasizes client education and proactive strategies to help clients avoid disputes, but when disputes arise, she helps clients navigate mechanic’s liens, payment bond claims, and litigation to protect their interests and pursue payment.  For more information, visit: www.dysarttaylor.com/our-people/leslie-a-boe/