Getting Paid When the General Contractor Has Been Terminated
Subcontractors and Suppliers Have the Right to Get Paid
You’re a subcontractor who hasn’t been paid. The Owner says he never has to pay twice and that he paid more to complete the Project than he was supposed to because the General Contractor got fired. You looked it up. He’s right. The lien law says the owner doesn’t have to pay twice. So why file a lien? TO GET PAID!
When subcontractors perform work or suppliers supply materials, they are entitled to be paid for the labor, services and materials that improved the property on which the Project is constructed. Since subcontractors do not have a direct contract with the Owner, States enact laws that allow you to file a construction lien or mechanic’s lien. When that lien is filed, it creates a fund of money, called a “Lien Fund.” While the definition of “Lien Fund” differs from State to State, it is basically the money owed to the person who owes you money at the time the lien is filed. In most States, this doesn’t change even if the Owner has to pay more to finish the job.
Let’s take an example.
The Owner has a contract with a general contractor to build a project for $1,000,000. You have a subcontract with the general contractor for $100,000. You are 100% complete with your work and file a lien. Let’s assume further that, at the time you file the lien, the general contract is 50% complete and has been paid $400,000 of the $500,000 owed. In that scenario, at the time your lien is filed there is a “Lien Fund” of $100,000 because the general contractor is owed $100,000 of the $500,000 of work it has performed. Let’s say that, at that time, the general contractor gets terminated and the owner has to pay $600,000 for the completion of the project when he only has $500,000 left on his contract to pay. You call the Owner and he tells you that you have no right to get paid because he never has to pay more than his million dollar contract.
According to the Lien Laws in many States, you do have a right to get paid. In those States, once the Lien Fund is established, the Owner’s payment for the completion of the job has no impact on the Lien Fund. While the legislature understands that Owners should not have to pay twice, their reasoning is that the Owner is not paying twice for the work that was performed at the time your lien was filed and the Lien Fund was established. There was $100,000 left to be paid and that $100,000 is yours.
Don’t assume you have no right to get paid when the Owner tells you he already paid too much. FILE YOUR LIEN. GET PAID!!