Getting paid on a construction project is significantly more difficult than it should be. Taking steps to protect your mechanics lien rights are a step in the right direction, but most liens can’t be enforced until well after the project is complete. For contractors who are struggling with cash flow, this can seem like an eternity. In these types of situations, one option could be to see if you have the right to suspend work for non-payment.
Can you can stop working if you’re not paid? Maybe.
The right to suspend work for non-payment should only be exercised as a last resort option. That’s because suspending work is no small matter. It involves pulling your crew and potentially fully demobilizing your materials and equipment. Not only that, but a wrongful suspension of work can lead to damages, like claims for delays or a breach of contract. Before you go ahead and suspend work, or even threaten to suspend work, there are a few considerations you’ll need to take into account to be sure that you aren’t risking more than you should.
Review your construction contract
When considering suspending work, the first place to look is in the construction contract. A number of construction contracts will provide this right. A typical right to suspend work for nonpayment provision will include how long payment must be past due, a notice requirement, and a period of time for the non-paying party to resolve the issue before the contractor can properly suspend work.
For an example of such a provision, one need look no further than one of the standard American Institute of Architects contracts; specifically AIA A201-2017: General Conditions of the Contract for Construction.
§9.7 Failure of Payment
If the Architect does not issue a Certificate for Payment, through no fault of the Contractor, within 7 days after receipt of the Contractor’s Application for Payment, or if the Owner does not pay the Contractor within 7 days after the date established in the Contract Documents, the amount certified by the Architect or awarded by binding dispute resolution, then the Contractor may, upon seven additional days’ notice to the Owner and Architect, stop the Work until payment of the amount owing has been received. The Contract Time shall be extended appropriately and the Contract Sum shall be increased by the amount of the Contractor’s reasonable costs of shutdown, delay and start-up, plus interest as provided for in the Contract Documents.
This type of clause included in a contract can be a powerful way to speed up payment. Without this language in the contract, if a contractor decides to suspend work, they may find themselves in breach of contract.
Get to know your state’s prompt payment law
Another place to look for the ability to rightfully suspend work is in your state’s prompt payment law. A number of states have enacted prompt payment laws to ensure timely payment. Prompt payment laws typically set a deadline for the owner to pay the GC, for the GC to pay their subs, and so on.
Some of these prompt payment laws include a statutory right to suspend work for nonpayment. Anyone working in the construction industry should be familiar with their home state’s laws, as well as the applicable law in any state they plan to work.
There are a number of states that provide a legal right to suspend work for nonpayment. Let’s take a look at California’s Stop Work Notice provision (found in Cal. Civ. Code §8830). These statutes say that if a direct contractor isn’t paid within 35 days after payment is due, and work isn’t in dispute, the contractor may provide a stop work notice. But first, the contractor must post a notice of intent to stop notice in a conspicuous place on the job site. And they must post it at least five days before sending a stop notice to the owner. If the payment dispute isn’t resolved – and the owner doesn’t dispute their work! – the contractor can rightfully suspend work without risking a breach of contract.
However, these laws can be fairly limited in scope. California’s provision only applies to a “direct contractor,” which means a contractor employed directly by the project owner. On many projects, that is likely to apply only to the prime or general contractor. Even more restrictive, there can’t be a dispute over work between the owner and contractor. Most owners, if served with a stop work notice, would likely dispute whether the GC performed the work according to the contract.
Many other states have prompt payment laws with ‘stop work’ provisions, such as Arizona, Illinois, New York, Texas, and a few others. A close look at your state’s stop work provisions should be the very first step to determining whether or not to suspend work.
Stopping work is a risky proposition
The right to suspend work for nonpayment is a powerful tool, but a risky one. Even if you have the right, it’s important to take precautionary measures to protect yourself. If you’ve read any of our other construction payment articles, you’ve heard this numerous times before. The best way to protect yourself is to communicate clearly, and document everything.
As in the examples above, you’re always required to give advance notice before you are allowed to stop work. And in some cases, you’ll need to send multiple notices. Almost every payment dispute in the construction industry is the result of communication problems. Before you walk off the job, reach out to the party with an invoice reminder or payment demand. Parties who suffer in silence, and resort to stopping work or filing mechanics liens without taking other, initial steps to try and collect payment, burn bridges quickly. And angry clients don’t like to pay.
In addition to keeping the channels of communication open, proper documentation is also crucial. These two go hand in hand. Anytime you’re confronted with a non-payment issue, or any issue for that matter, be sure to document everything. Whether it be keeping copies of invoices, using daily reports, or taking photos. Often, what actually happened isn’t as important as what you can prove.
Suspending work can be an effective method to induce payment, but doing so comes with some serious consequences. Review your contract and the applicable state statutes before making a move. Contact the owner or contractor, and keep records of the reasons for the suspension. And lastly, considering how drastic of a move this is, you may want to reach out to a local construction attorney to advise you on how to proceed.