Maryland General Contractors will have some extra headaches moving forward…potentially even migraines. In a move similar to California’s passage of AB 1701, Maryland General Contractors will now be liable for for their subcontractor’s failure to make payments. GC’s will have until October to prepare.
Maryland General Contractors Beware: SB 853 Means More Liability
Much like California’s AB 1701, this bill being passed will ruffle plenty of feathers in the Maryland construction industry. Before getting too carried away though, let’s look at what the bill actually calls for…
You can read the whole bill here (it’s only a page!): Senate Bill 853.
General Contractor Liability
The elephant in every room: liability. Come October, a general contractor will become jointly and severally liable for subcontractors’ failure to pay employees. This applies to subcontractors who are not even in direct contract with that general contractor. Yep – this means that a general contractor will now become liable for every down-the-chain party on a project paying their employees in a manner consistent with Maryland wage and hour laws.
The time frame for this liability is expansive, too. 2 weeks after a payment is missed, a claimant make a claim against both the general contractor and the non-paying party. After that, a claimant will have 3 years to make a claim.
There’s also a good breakdown of SB 853 on Lexology.
Subcontractor Indemnification
Here’s a little good news for GC’s! When a subcontractor’s employee makes a claim against the GC, that subcontractor must indemnify the general contractor.
The sub will have to indemnify for any:
- wages
- damages
- interest
- penalties
- attorney fees
In fact, this is really good news for Maryland general contractors. Penalties for wage and hour violations can come with treble damages – meaning, a party found in violation pays TRIPLE the amount of the claim.
Hold your excitement, though. If a subcontractor is not paying their employees, there’s a fair chance that sub is not doing great financially. If the subcontractor can’t pay to indemnify the GC who must pay damages, that GC may find themselves empty handed.
Exceptions to Indemnification
A subcontractor might not always have to indemnify the GC. There are two exceptions: (1) when indemnification is provided for in a contract between the general contractor and the sub; or (2) when a violation arose due to the GC’s failure to make timely payments to the subcontractor.
Takeaway
What’s the bottom line here?
We won’t really know how this will effect the state’s construction industry quite yet. However, it’s fair for Maryland general contractors to be pretty apprehensive. It seems a little harsh to make a GC liable for their subcontractor’s failure to pay employees. It’s even harsher to make a GC liable for the failure of a sub-subcontractor to pay employees, and all the way down the chain. Sure, that sub will have to indemnify a general contractor in most instances. But that won’t make up for the time and stress a contractor will face when claims are made.
Further, there’s a strong probability that a subcontractor wouldn’t even have the means to completely indemnify a general contractor anyway. Knowing this, it seems safe to assume that the cost of this risk will be passed right back down the chain from contractors to their subs and so-on, compounding construction payment problems.
Check out our Maryland Construction Payment Resources – we’ve got free downloadable forms for Maryland construction documents. Not in Maryland? Select your state.
