What to do if you have not been paid by a general contractor for a

What to do if you have not been paid by a
general contractor for a public project
Contact the General Contractor
The first step in deciding what to do when you have not been paid is to contact the
general contractor to determine the basis for nonpayment. If the nonpayment is not because of
your fault, you may have the right, under your contract with the general contractor, to stop
working until you receive payment. If the nonpayment is allegedly because of your fault, you
probably will not have a contractual right to stop working even if you dispute the general
contractor’s basis for nonpayment. However, in such a circumstance, you will still likely have
the right to make a claim on any applicable payment bond.
Read the Contract
Some contracts will include provisions allowing you to stop work for nonpayment. These
provisions typically define the circumstances under which you have the right to suspend or
terminate the contract and identify steps that must be taken by you before doing so. Therefore,
when nonpayment is because of the fault of others for whose acts you are not responsible, you
should review your contract for similar provisions before taking any action in response to the
general contractor’s nonpayment. Typically, before suspending work, you must provide the other
party with written notice of the overdue payment and an opportunity to pay within a given time
period. For instance, under Article 4.7 of AIA A401 Standard Form of Agreement Between
Contractor and Subcontractor, if you have not been paid within seven days after the date for
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payment established in the contract, you may, upon seven additional days’ written notice to the
general contractor, stop work until payment has been received. Failure to comply with the
required steps or suspending the work in circumstances prohibited by the contract may be a
breach of the contract.
When a contract neither expressly grants nor denies you the right to terminate or suspend
work when you do not receive payment, a court will evaluate all the surrounding circumstances
to determine whether the general contractor’s failure to pay constitutes a material breach of
contract. In determining whether the failure to pay was a material breach, courts typically will
consider facts such as the amount due, size of the contract, degree of lateness of the payment and
whether the general contractor has acted reasonably and in good faith.
Even in seemingly one-sided scenarios, you must make a judgment call and if you
determine to suspend the work, you risk a subsequent finding that you breached the contract.
Because there are no guarantees a judge will rule as anticipated, there always is some risk that
accompanies the decision to suspend or stop work. Therefore, it is best to err on the side of
continuing to work, provided it is feasible financially and there is no evidence of larger problems
with the general contractor, such as an impending bankruptcy.
Preserve Your Rights Under Any Applicable Payment Bond
The federal government and most states prohibit filing a lien against public property.
Instead, applicable law requires the prime contractor on a public project to obtain and provide a
payment bond for the work. The payment bond is intended to ensure payment to all persons or
entities performing work that improves the public property.
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In the event the general contractor does not pay you, your first step to taking advantage of
the protection of the applicable payment bond is to determine whether notice of the general
contractor’s nonpayment must be given and to whom such notice must be provided. To do this,
you will need to obtain and review the terms of the payment bond and determine whether the
general contractor has a direct contract with the owner. On state projects, the payment bond can
be obtained by making a request to either the public owner or prime contractor or by making a
formal request under the state’s Freedom of Information Act or Open Records Act. The Miller
Act, which applies to all federal projects where the prime contract exceeds $100,000, contains a
procedure by which the payment bond can be obtained by submitting an affidavit to the federal
contracting agency.
Generally, the requirements for making a claim will be listed in the state or federal
statues that require the provision of the payment bond on the public project, not in the payment
bond form itself. Therefore, you also should consult with competent legal counsel to ensure all
applicable requirements are identified and followed.
If the general contractor has a direct contract with the public owner, you may not be
required to provide any party with written notice of the general contractor’s nonpayment to
preserve your claim on the bond. If the general contractor does not have a direct contract with the
public owner, you likely will be required to provide notice of your claim to the prime contractor
and to do so within a specified time period after beginning the work. This notice usually will
have to include, at very least, the amount of the claim and party for whom you provided work.
Although not required on federal projects, certain states also may require you to provide a
preliminary notice before starting any work to preserve your claim against any applicable
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payment bond. Therefore, it is strongly recommended you obtain copies of all applicable
payment bonds before beginning work and that you fully investigate whether any pre-work
requirements exist in your state.
Assuming you are not paid after you have provided the requisite notice, if any, most
states will allow you to file a lawsuit against the surety to enforce the terms of the payment bond
either one year from the completion of the project or one year from your last day of work. On
federal projects covered by the Miller Act, a lawsuit must be filed within one year of your last
day of work at the project.
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