What rights do 1st tier subs have when a GC directly pays 2nd tier and the amount has been disputed?

5 days ago

What rights do 1st tier subcontractors have regarding mechanic’s lien rights when a general contractors directly pays a 2nd tier subcontractor an amount that has been disputed between 1st tier and 2nd tier?

Senior Legal Associate Levelset

When a contractor leapfrogs their subcontractor, making direct payments to their sub-subcontractor or vendors, it can complicate a construction payment dispute. Certainly, when that isn’t allowed under contract, there could be negative implications for a GC – like, potentially, breach of their contract with their subcontractor. Regardless: a subcontractor is still entitled to what payments they were going to receive prior to that leapfrogging.

Meaning, a subcontractor may not be entitled to payments that would have been passed through to the sub or vendor – but they’d still be entitled to their own payment, as previously agreed upon. So, deducting the amount that was passed-through from what was previously owed may be a fair way to calculate what’s owed.

As for disputed amounts – if a subcontractor is owed but unpaid for their work, they’ll generally be entitled to the same remedies as usual. Mechanics lien rights or other payment claims should still be on the table.

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