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Rights as a sub when a GC doesn't pay amongst other issues

We are a subcontractor on a Federal project. We are nearly done on a $450k contract. The GC has rejected our last pay app of $40k and state they only owe us $5k. They have now revised our SOV (which has been used in 15 previous billings) and removed 5% of all work and listed it as "punchlist". They claim the remaining balance of our pay app will be held and fill the "punchlist" line item they have now created. They have also rejected change orders that we have written approval from them more than 1 year ago. We have had numerous change orders approved but never added to the contract value. We have billed them for those and have been paid, but they never added the costs to our contract value. Now they have contacted our tier sub directly and offered to hire them to complete the project. Is any of this legal?

2 replies

Mar 31, 2020

A GC isn't entitled to do whatever they'd like. If the GC is acting improperly, and if they're going back to past approvals and editing things, then there's a strong chance that they could face liability - particularly on a federal project. As for going around you and trying to hire your sub - if there's nothing in the contract preventing your contractor from poaching your sub-subcontractor, then the GC may well be able to hire that party directly. But, that doesn't make your contract with the GC any less valid, and that doesn't mean the GC can simply refuse to pay you what you're owed.

How to force a customer to pay what's owed

Finally, let's look at some options for speeding up payments from a customer. Additionally, I'll lay out some potential claim options if they're adamant about not paying.

Invoice reminder

Providing simple reminders can be a great way to force payment without diving headfirst into a payment dispute. Sending official invoice reminders showing what's unpaid, along with any other relevant documentation, may be enough to prod a customer into doing the right thing. If the relationship has seriously deteriorated, though, something stronger may be in order.

Notice of Intent

Sending a Notice of Intent to make a bond claim can be a good option, too. GC's on federal jobs must typically provide a payment bond which ensures all subs and suppliers on the job will be paid. And, when a GC is trying to stiff you on a federal job, a claim against that payment bond can make sure that payment is made. As a result, simply threatening to make a claim on the bond could be enough to get paid.

Demand letters

Stepping things up by sending a payment demand letter can be effective, too. A demand letter is designed to let the customer know that you're serious about getting paid and willing to do whatever it takes to make sure that happens. By including specific legal demands, you can let the customer know you're aware of your right and ready to use them.

Making a Miller Act claim against the bond

Pursuing a Miller Act claim is a great way to secure payment when the project seems to be crumbling. If you were hired by the GC, then no "claim" will actually be necessary - and you could proceed straight to filing a lawsuit, if necessary. If you were hired by someone other than the GC, then a bond claim must be made within 90 days of last furnishing labor more materials to the job. In either case - the bond can make sure you get paid. More on Miller Act bond claims here: (1) The Miller Act Claims: What You Need to Know to Make a Claim; and (2) Federal Miller Act Guide, Forms & FAQs.

Legal claims

Finally, in addition to a potential Miller Act claim, other legal claims could be in order. Breach of contract claims, claims under the federal Prompt Payment Act, and other legal claims could all be on the table, in addition to things like blowing the whistle under the federal False Claims Act. If things have spiraled out of control and pursuing a legal claim seems like a viable option, then consulting a local Virginia construction attorney could be helpful in determining what options would be the most viable - then they could help pursue those claims.

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Mar 31, 2020

If after you have exhausted all your efforts to resolve if you do not want to go through the time and expense of filing a law suit, you could let a certified commercial collection agency licensed and bonded to collect in Virginia attempt to collect the account on a contingency fee bases. This way you are not out of pocket any money and if they are not successful in a short period of time you can always file suit then if it becomes absolutely necessary. If you would like a free quote just call or email srauch@rauchmilliken.com Best regards getting your money, Steve

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