Earlier this year, a friend of mine had an interesting
conversation with a young man who was subcontracting for a GC.
The contractor owed the young man a pile of money and my friend
was concerned. But the young man assured him there was nothing
to worry about, because the contractor was a pal and would
never stiff him. “Besides,” said the young
man, “I can always put a lien on the
That is never a wise assumption.
When a sub doesn’t get paid, it’s almost
never because the GC set out to cheat him. I can think of only
a few times when I’ve seen that. Instead,
it’s usually because the contractor is in financial
trouble and can’t pay all the subs.
So what can the young sub who confided in my friend do to
protect himself? He should take a close look at the contracts
he is asked to sign and search for clauses that spell trouble.
Two prime deal-breakers are pay-when-paid clauses and a
requirement to sign a lien waiver. He should look for these
clauses in the contract between the sub and the prime
contractor and in the contract between the prime contractor and
the property owner.
It might seem odd for a sub to ask to see the contract between
the owner and the GC, but the contractor is obligated to show
any terms the sub is bound by. And in most states, the fact
that the sub did not see the prime contract will have no
bearing on whether he is bound by it. In other words, ignorance
is not a defense.
Pay When Paid
A pay-when-paid clause says the sub doesn’t get paid
until the job is finished and the customer has made his final
payment. Under these conditions, the sub can expect to hear
something like, “Of course I can’t pay you
until after I get my money.” And sometimes
that’s true, especially on smaller jobs.
But pay-when-paid clauses can be pretty open-ended. Exactly
when will the contractor be paid? How long after that will the
sub get paid? Keep in mind that on most projects the contractor
collects payments as work proceeds, and — depending on
what state he’s in — he may have collected a
big up-front sum. Payments are often tied to fixed dates or
contract milestones, like pouring the foundation, completing
the drywall, and so forth.
Rather than agree to a pay-when-paid clause, the sub could
insist on language that says his pay is tied either to those
milestones or to the customer payment due when the
sub’s part of the job is finished. Or, if the job is
small, the sub could substitute language that says
he’s due his payment a certain number of days after
final job completion.
The second kind of language subs should watch out for has to
do with lien waivers. Sometimes these clauses — which
say the sub has surrendered his right to put a lien on the
customer’s property — are in the contract
between the sub and the prime; other times they’re in
the contract between the prime contractor and the customer. I
have reviewed countless contracts that contained lien-waiver
clauses the sub didn’t realize were there —
or didn’t realize were binding on him. Without the
right to put a lien on the property, there’s almost no
way a sub can collect from the property owner if the contractor
If a sub finds a lien-waiver clause in the prime contract,
what should he do? Before performing any work, he should write
up a memo saying he has not given up his right to a lien.
Ideally, he should get both the contractor and the property
owner to sign the memo. The property owner’s signature
is especially important: Since it’s his property that
will be liened, only he can sign away his right to a lien
The young sub mentioned above was way too lax in his attitude.
You can’t always put a lien on a property.
The rules for filing a lien are very specific and vary from
state to state. In some cases, certain paperwork must be filed
while the job is going on. It’s important to preserve
your lien rights, and the best way to do that is by learning
the rules and being careful not to sign those rights
away.Quenda Behler Story has practiced and taught law for more
than 25 years.