Free Webinar: Contract Traps To Avoid and Get Paid

• Pay-when-paid clauses
• No damages for delay clauses
• Claim waivers
• Right to Stop Work for Nonpayment

Transcript

Kathryn Barona: (00:04)

Hi, good afternoon. Thanks for joining level set and gray Robinson for the webinar today. And we’ll get started in just about two minutes to let people sign into zoom right now. And I’ll introduce our speaker Reese Henderson. We’re just giving people a minute or two to join the webinar today and we’ll get started shortly. Okay.

Kathryn Barona: (01:18)

All right. Let me go ahead and kick this off by introducing our speaker Reese Henderson. I’m a board certified construction lawyer based in Jacksonville, Florida, and his firm. Gray Robinson has 15 offices throughout Florida and our location in Washington DC. And he is very well-versed in construction law. And thank you so much for presenting contract traps to avoid, to get paid with us today. Look forward to a great presentation. I know you’ll learn a lot from Reese and if you have any questions during the presentation, just type it into the chat, I’ll see it. And I’ll be sure to let him know there’s a question and he can address that. Thank you.

Reese Henderson: (02:08)

Thank you so much, Catherine. Um, again, uh, good afternoon, everyone and welcome. And, um, as she indicated, my name is Reese Henderson. I’m a construction of Florida construction attorney. Uh, a little bit about me. I’ve been practicing for, uh, in the construction law area for just over 20 years. I’m admitted in Florida as well as Georgia. Uh, I am a board certified in construction law in the state of Florida, and I’m also a certified mediator and also a AAA arbitrator. So, uh, that means that, uh, I can mediate cases and also arbitrary cases, which, uh, an arbitrator is basically a private judge. So, um, so I’ve had a lot of experience in the construction, uh, area. And in addition to that, um, certainly over the years, um, have drafted my share

Reese Henderson: (02:59)

Of construction contracts. And in fact, I’m working on one now for a, um, a project involving, uh, television studios. So, you know, I deal with all sorts of these types of issues and what the goal for today’s seminar is to cover basically a few points. Um, uh, there are contract traps that, uh, can appear in, in, in, in basically subcontracts in, in, in, certainly these can also be owner contracts if you’re the general contractor and you’re negotiating with an owner, but where this often comes up, uh, what I see a lot of is subcontractors negotiating with general contractors. And so, uh, some of these are some of the issues that come up when you’re, uh, looking at these contracts and if you’ve been doing work awhile, you start to figure out there’s certain things that are in those contracts, uh, that shockingly they’re written to protect the general contractor.

Reese Henderson: (03:53)

Um, I’m sure that comes as, as a, as a big surprise, but there are certain things that you can do, uh, in, in some of these cases to put yourself in a better footing, because if you take the boilerplate contract that you get from the general contractor, uh, it’s going to have all the clauses in there that protect the general contractor and almost nothing in there that protects you. So, uh, so let’s talk about what some of those are. Um, one thing that I see a lot of that we’ll spend some time on this afternoon or pay when paid losses, that’s a clause that says you don’t get paid by the general contractor until the general contractor gets paid by the owner. We’ll talk about that, uh, for a few minutes, second, there’s something called a no damages for delay clause. And that’s basically says that if you are delayed in the performance of your work, uh, typically your only remedy is going to be an extension of your contract time, your additional costs, your extended general conditions, um, you know, your additional rental costs, those types of things that you incur because the project is delayed.

Reese Henderson: (04:53)

Uh, if, if there’s a no damages for delay clause, uh, you just have to eat those costs. So that’s obviously problematic. Um, third there’s a claim waivers. And what this refers to is you’ve submitted a monthly payment application, and there’s a set of documentation that the general contractor will require you to submit. And one of those includes a partial waiver of lien to cover your, um, you know, the, the work that you’ve done through that, the effective date of that payment application. So it says that, uh, you know, in exchange for payment, that you’re waiving lien rights, but what it also often contains is language that waives rights to any outstanding claims. So we’ll talk about what that means in a little more detail in what you can do about it. Finally, um, this is a, the other three points are more defensive or reactive.

Reese Henderson: (05:48)

This is a more of a proactive point, which is, uh, negotiating for a right to stop work for nonpayment. Um, most, uh, subcontracts do not include such provision. And it’s always my recommendation to get that included if you can. So let’s move on then to, uh, talk about pay when pay clauses. So in Florida, you know, uh, there’s an example here, which is, uh, you’re going to have difficulty reading on your screen, but, uh, but the gist of it is in the underlined portions. Um, you know, you can see where I’ve underlined. It says that, uh, you will have no obligation to be paid for any work done on the project until the contractor has been paid by the owner. And it talks in terms of, uh, your, your payment, right, is subject to the express condition, proceeded that contractor shall receive from the owner, uh, progress or final payments, at least the amounts that are owed to the subcontractor.

Reese Henderson: (06:41)

And it goes on to say that the subcontractor expressly assumes the risk, that it will not be paid for work performed in, in, in talks about that in more detail. And if further, that the subcontractors relying solely on the credit and the ability to pay the owner. So this is not what I think most subcontractors have in mind when they’re negotiating a subcontract. They’re not thinking that they’re going to do work. And then the, that the general contractor will simply not pay them, uh, you know, based upon the fact that there there’s issues with the owner. Uh, but that is in fact how most subcontracts read. Um, and so that’s something too we should talk about. And how do you deal with that? Well, to start with, uh, you know, you might ask yourself, well, you know, and I have been asked, you know, is that legal?

Reese Henderson: (07:28)

Is that enforceable? You know, if they, if they say that they can withhold payment for me, you know, I can do all my work and the work could be perfect and accepted, but if the, if the general contractor isn’t paid, does that mean they owe me nothing well in Florida, the answer’s yes, but, uh, and the key case in Florida came out of the Florida Supreme court back in 1977, the peacock structuring company versus modern air conditioning, Inc. And what the court said there is that, yes, these clauses are enforceable, but, uh, they, the, the tie basically goes to the subcontractor. Um, they, the, the presumption is that that should not be a condition so that if the general contractor wants that to be a condition of payment, I E that the general contractor has been paid by the owner. Then as the court put, the burden of clear expression is on the general contractor.

Reese Henderson: (08:19)

So in layman’s terms, what that means is that if the clause is ambiguous, if it’s not clear, then, uh, then it’s not enforceable. And, and that the court will construe the pay when paid clause is simply a time, a reasonable time for payment, but that payment by the owner would not be, um, a condition proceeded or, or, you know, it wouldn’t be a requirement for the general contractor to the subcontractor. So as a result of the peacock decision, this is why, uh, careful, general contractors who have a competent construction, uh, lawyers who draft their contracts for them, they always make sure that, that, that clause is crystal clear that payment by the owner is a condition proceeded, or is, is a requirement before the general contractor is the subcontractor. So, um, so that’s the state of the law, uh, in Florida. And now there’s one important difference here.

Reese Henderson: (09:14)

So, uh, you know, and again, you’ll generally see to make that clear, you’ll see that language that says as an ex express condition proceedings, uh, if you see that language, uh, in reference to payment by the owner, then, you know, you’ve got an enforceable pay when paid clause, uh, generally speaking. So what do you do about it? Well, uh, in general, um, you know, let me just say that, uh, you know, you can’t typically do anything about getting these clauses stricken the general contractors, understand that, um, you know, they, they don’t want to be on the hook for paying your bill if you know, and paying it out of their own pocket. Um, they, they, they are generally not receptive to, uh, removing that clause, but there’s a language that, that I included in the example earlier, that was very small that you probably couldn’t read.

Reese Henderson: (10:03)

So I repeated it here. And that language says that the liability of the surety on the contractor’s payment bond, if any, is also subject to the same conditions, proceeded, meaning that you couldn’t make a claim against the payment bond, unless the contractor had been paid by the owner. Now in Florida, there are two different types of payment bonds. There’s, uh, the traditional payment bond, which is what I’m going to be talking about here. But I want to just be clear, there’s something called a conditional payment bond. And if it’s a conditional payment bond, then that bond only covers, uh, payments to subcontractors to the cent. The general contractor has been paid by the owner. And in fact, it, that statute was created as a result of the case. I’m about to talk about in a minute. Uh, so whenever you have a payment bond on a project, you have to look at it and if you can’t figure it out, have your own pet, you know, give it to your attorney and get your attorney’s take on it.

Reese Henderson: (10:58)

But if it, if it’s a conditional payment bond, what I’m about to tell you it doesn’t apply, but if it’s not a conditional payment bond, then the law is this, um, you know, in, in the law is under, uh, OBS versus pays construction. Uh, it, you know, the payment by the owner is not a condition proceeded. And the bond, the rights against the surety are not affected by whether the owner has paid. And basically what the, um, you know, uh, you know, so what’s the observation is, you know, you can’t get these clauses to go away, but you still have ways to get paid as a result of the OES versus paced case. What that case said was that, um, in the light of that language that said, you know, the surety doesn’t have to pay either unless the owner has paid the contractor, the LVS versus pays case that will know that would defeat the whole purpose for having the payment bond then because the payment bond is put in place at the owner’s as collateral as security.

Reese Henderson: (11:55)

So if there wasn’t a bond in place, you’d be able to file a lien and enforce that. And so that’s one of your ways of getting paid. Uh, and those lien rights are not affected by it. They wouldn’t pay clause because Elaine is a sort of directly against the owner. So if the owner hasn’t paid than the owner is the lien that that’s, that’s simply the case. Um, you know, that’s black letter law. That’s, there’s no confusion there, but where the confusion comes in is on the Bob rights. And so the general contractor said, well, look, I can put a clause in my contract that says, I don’t have to pay you unless the owner pays me. And by the way, I want the surety to be subject to the same condition, because guess what if the surety has to pay, then the shirt is turning around to the general contractor and looking for reimbursement.

Reese Henderson: (12:38)

So from the contractor’s point of view, that’s that defeats the purpose of having to pay when paid, because they still have to pay, but when you’re the lean, or if you’re the one providing the services you want to be paid. And if you’re, if, if it’s a bonded project, that means you can’t file a lien. And if you file a lien, it gets transferred to the bond. So, um, the bond would basically, if you allowed the surety to be, to use the pay when paid defense, then you’ve effectively repealed the lien statute as it applies to that project, because then nobody could enforce their rights and the owner could withhold payment and everybody would just be stuck because of the pay when paid. So, so the, so the net effect of that is if you have a pay when paid clause, don’t count on negotiating it out of your contract, however, um, enforce your lien rights.

Reese Henderson: (13:27)

If, if it’s a reg, if it’s a private job and there’s no bond. And if it’s, if it’s a public job, or if it’s a private job, that’s been bonded, perfect, your rights against the payment bond. And that’s beyond the scope of this presentation, but that’s what you should know when dealing with a pay when pay clause is that’s how you get paid. So let’s move on then to, um, now we’re going to talk about, so the bottom line is you need to perfect your lien or bond rights. So let’s talk about no damages for delay clauses. And, uh, here’s an example of one that, uh, I have seen written. So this one talks about no claims for additional compensation or damages for delays. And it talks about whether call it whole calls and whole, or in part by the contractor. Um, Shelby recoverable from the contractor.

Reese Henderson: (14:18)

And it says in the above mentioned extension of time, which was language in a previous paragraph shall be the sole remedy of the, as a subcontractor. So, so what this clause is saying is that if you’re delayed on your project, uh, by actions of the contractor, or maybe by another subcontractor, or even by the owner, uh, you were not going to get, uh, any additional money, whether that’s for your extended general conditions, whether that’s for overtime, for your employees to make up the delays, uh, whether that’s extended rental on the equipment that’s sitting there that you can’t use, uh, and you were planning to be on the job for two weeks, and now you’re on the job for three to four weeks, and you have all this additional rental, you don’t get any compensation for that under this clause. Your only remedy is that if you were supposed to be done in two weeks and you were delayed, well, guess what?

Reese Henderson: (15:05)

Now you have three weeks and you’re not going to be penalized for that. So they won’t try to hit you with liquidated damages, but they’re, but they’re also not going to pay you any additional money. So, um, you’re no doubt grateful for the lack of liquidated damages, but what about your costs? You know, how do you get paid for that? So, um, so the first question I get again is can they do that? Um, yes. In fact, no damages for delay clauses are enforceable in Florida. And in one recent example of that, uh, one of the more recent examples of that, uh, in the case law is the triple R paving Inc vs Broward County case. And, uh, it’s, it’s it, this is not the first case that that held this, but it was one of the more recent ones. And it just reaffirmed that, uh, absent fraud, bad faith, or active interference by the other party that, uh, that no damages for delay clauses are enforceable, which means unless you can show fraud, unless you can show bad faith by the contractor, or unless you can show that you were your work, they actively interfered with your work and prevented you from completing on time, um, that, uh, that you you’re going to be bound by that no damages for the Lake on.

Reese Henderson: (16:11)

So what is active interference? Well, again, it’s more than just negligence. So if this is just typical delay that happens on a construction project, that’s not going to be active interference. So, you know, a shipment gets delayed, um, uh, a trade that has to finish before you can start your work. If they’re just a little behind schedule or, you know, they’re, they’re, they’re, they’re slow. Uh, that’s not going to get you out of it. That’s not going to allow you to recover for your delay damages. So, uh, what are some workarounds? Well, one, one possibility, and, and I’ve seen this done is, um, you know, no damages from relay is a pretty harsh position, but what about, um, what about a negotiated daily rate? You know, something we call defined damages for delay, which means you don’t leave it up to the parties to come up with numbers on the fly during the project.

Reese Henderson: (17:04)

Instead, you agree when you negotiate the contract and you basically documents the general contractor, look, if I’m delayed, it’s going to cost me X and you pretty much know because you’ve bid the job. What’s your, what’s your, uh, cost of performance are going to be, you know, what your general conditions are going to be, you know, what your equipment rental is going to be, um, you know, figure out a daily rate that would, that would reimburse you for those damages. And try to negotiate that with the general contractor is, is, uh, is a form of defined damages. Um, and sometimes you can get that sometimes they won’t agree to that, but, uh, but that’s a reasonable approach. Uh, and it protects both parties because, uh, the general contractor at least has an idea of what they’re looking at. Uh, if there’s an agreed daily rate, it’s not, you know, they’re not out of the blue with a huge number.

Reese Henderson: (17:51)

They know exactly how much it’s costing them on a daily basis. If, if they’ve negotiated that with you upfront, um, another approach that I’ve seen, uh, because you can’t always get the daily rate, as I suggested you can. One thing you can negotiate for oftentimes is for overtime compensation to overcome delays, uh, by others. Now, typically, if, if that’s the negotiation, you’re not going to get overhead and profit on that number, but if you, uh, have your employees keep, uh, detailed time records and you submit those to the general contractor, you can often negotiate to, to at least if the delay was not yours. And the general contractor comes to you and says, look, I know the framer delayed you, or, or the, you know, the drywall guy delayed you. And, and you’re just now getting into project a week late, you know, but I really need you to make up this time, um, you know, help me out here.

Reese Henderson: (18:46)

Well, you’re, you’re gonna throw in an extra crew or, or, you know, bring on, you know, or, or, you know, fill up the crew with a few more people or whatever you have to do, bring on additional labor. There’s a cost to that, right? Uh, and if you having them working longer hours, if you’re having them working weekends and holidays, you have to pay overtime comp negotiate with the general contractor, say, look, I’ll be happy to help you out, but you need to pay for my overtime because that’s an additional cost that you did not consider. And you’re basically doing the general contractor a favor, and that’s something you can negotiate a contract time. That’s also something you can ask for when, when it happens in the field. So, uh, you know, in many times the general contractor will be, uh, sufficiently motivated to get the project back on schedule that they, they will entertain that discussion.

Reese Henderson: (19:30)

And they, and again, as long as you don’t get greedy, um, you know, they’re, they’re happy to negotiate and compensate you for that. Um, but make sure when you have these situations that you document your delays in writing when they happen and request compensation. So that even if, even if the general contractors just being really difficult and not wanting to agree to anything, document the delay anyway, and write a letter, email or something and asked for compensation, you know, the worst case scenario is you send that email into cyberspace and nothing ever happens to it. But under the law, you may actually set up a case for a waiver. And what a waiver says is that even though the contracts is X, if the parties perform in accordance with the different procedure than what’s set forth in the contract, and you’ve established that as, as a regular practice throughout the project, uh, you can set up a situation where that no damages delay clause will be waived, and then you can then recover your damages. But if you, if you’re not documenting the delays, if you’re not asking for compensation, you’ll never get a set up for that situation. So, so, um, again, it’s not a guarantee, but if you want to try to get yourself in a position to recover delay damages at the end of the job, that would be the way to do it. So, Catherine, was there a question or something I saw you popped up?

Kathryn Barona: (20:49)

Yes, there is race. So that’s some from Bob in Ohio, I’ve been told there is a difference between pay when paid and pay if paid. Yes, there is. I’ve been told that I forfeit any lien rights by agreeing that payment is a condition precedent because of the wording and the lien does this vary by state.

Reese Henderson: (21:16)

So, yeah, so I am not an expert in Ohio law. So let me just put that out there, right up front. And so if you want a definitive, uh, opinion from a lawyer on Ohio law, you should talk to an HIE lawyer. Um, what I can tell you is in Florida and generally speaking in, in Georgia as well, uh, again, the whole purpose, you know, it does vary by state, uh, when it comes to lien rights, in this sense in Florida, you can not waive lien rights in advance. So if I see language in the subcontract that says, you know, in this, I see this from out-of-state contractors that come into Florida and do projects here, they’ll include language that says, aye, Mr. Subcontractor waive all lien rights on this project, that’s fine and dandy and some other States, and that might actually be enforceable.

Reese Henderson: (22:04)

That language is, you know, worth with it’s worth this sheet of paper right here. I mean, it has no value in Florida has, is completely unenforceable. So, um, difference between pay if paid or pay when paid, um, you know, again, in some States that may be a distinction that that’s meaningful in Florida, it’s the same thing in mouse did the same thing. Uh, you, you may condition payment on, uh, being paid by the owner, but what you cannot do as a general contractor is deny a subcontractor, their lien rights, uh, were bond rights, um, through that clause. So you can, you could write that up in the subcontract as many ways as you like, but at the end of the day, your subs will still have either lien rights or bond rights. It just depends on, uh, whether there’s a, uh, uh, regularly bonded project.

Kathryn Barona: (22:56)

Okay. Thanks for that. And I just want to let everyone know if you have a question, of course, there’s people on here from all across the us and lean laws do, of course, vary state to state. So if you post, if you post a question and our experts in our community, um, and you tag your state such as Ohio, um, a construction lawyer in Ohio, we’ll see those questions and they can answer and give you some advice from your specific state. So we do have attorneys in all States that, um, are happy to help with some knowledge. Thanks. Get back to that.

Reese Henderson: (23:37)

Sure. Yeah. And, uh, and that’s, that’s a good point, Katherine, because the laws do vary quite a bit, uh, state to state. And so, um, you know, what I’m telling you, I think is, is good advice in general, when it comes to lean, your bond rights is, is always look into it. Um, you know, in, in virtually every state, that’s the best way to get paid. And, uh, in, you know, if you want advice on, on how the laws work in individual States, you know, check with your, those attorneys, but, but the lien laws are on the books for a reason. Um, you know, because historically, uh, trade contractors had problems getting paid. So, um, so we talked about, you know, setting up a waiver for a, um, uh, no damages for delay clause. So let’s talk about, um, let’s move on from that and talk about claim waivers.

Reese Henderson: (24:25)

So we can stay on track here in Allen time. Um, here’s an example from a waiver and release of lien, and this is something that happens in, in other States as well. But this one States that this waiver and release applies to all facts, acts events, circumstances, changes constructive, or actual delays, acceleration, extra work disruptions, interferences, and the like, um, which have happened prior to the effective date here of, and it says accepting, only claims currently unresolved for which written notices provided to the contractor. So notice that, first of all, if you have claims that you need to provide, as I mentioned a moment ago, when it comes to delays and it’s not just for delays, it would also be for extra work claims, you know, change conditions, claims any type of claims, always comply with the contract’s written notice requirements. Uh, and, uh, you know, I’m not going to get into too much detail about that, but you know, almost any type of claim, whatever it is, whether it’s for delays, whether it’s for, you know, differing site conditions, whether it’s for, you know, extra work, there’s going to be a requirement in subcontract that you have to give notice within X number of days.

Reese Henderson: (25:35)

Sometimes it’s 48 hours. And sometimes it’s very short. So know what those are ahead of time and send the notice. I mean, it’s as simple as sending an email on those cases, but with this, this is a, a payment application waiver, uh, and it says so and so unless you’ve given written notice, you haven’t preserved it, but then, but then you also have to list it because it says for which written notice has been provided to contractor as follows. So what that’s telling you is in addition to providing the written notice, you also need to list that claim in the blank provided in the lane waiver, because if you don’t, then it goes on to say, acceptance specifically described above subcontractor, expressly waives, all claims against contractor. So what is this doing here? What is the purpose of this? Well, it’s very intentional on the general contractor as attorneys part, what they are trying to do is flesh out claims because the last thing that general contractor wants to have happen is to get to the end of the project.

Reese Henderson: (26:37)

We do their final draw, which from the general contractor’s point perspective is that’s the draw that they get, you know, their, their profit, their, their fee out of, you know, that that’s the last draw everybody’s been paid and they finally get their fee. Well, the last thing they want to have happened when their fee comes up is have subcontractors come out of the woodwork, asking for changes at the very end of the job. So this is designed to say, Mr subcontractor, if you have a plane, you better list it here, because if you don’t, we’re going to assert this waiver against you. And, um, you know, and I’ve seen it happen where, you know, subcontractors, don’t read these waiver forms, they just sign them. And then they come to me later and say, Hey, after this change order claim, and I gotta be, well, I have to be Frank with you.

Reese Henderson: (27:21)

We can try. But you know, you you’ve signed a waiver saying that were there weren’t any claims. Uh, and, and then you want to come at the end of the job and ask for a change order, you know, good luck. Um, I’ve also seen it where they’ve come to me, we’ve, we’ve, you know, inserted the language to, uh, preserve the claim. And then the, the, the office, uh, involved, uh, switches managers and the new manager doesn’t realize it and signs a waiver without the preserving language. So you have a series of lien waivers that have the correct language, and then you have one that, that omits the correct language. Well, what’s the legal effect of that. Well, you get to pay your lawyer to find out because it’s going to be up to the judge or jury to decide what the effect of that is.

Reese Henderson: (28:05)

And that’s obviously not where you want to be. So what do we do about these well, and yes, you can do that. Um, this is an example, uh, spectrum interiors versus exterior walls case out of the floor is 50 CA where they upheld a similar, similar release language against a subset contractor’s claim against a subcontractor for damages that for work dating prior to the effective date of the release. So if you sign a waiver or release, and you say that, that, you know, it has a place for you to list claims and you don’t list claims you sign that waiver. You know, if generally speaking, it will be enforced. That’s the purpose of the waiver. So best practices here are read the lingual waiver language very carefully, do not sign any lien waiver without reviewing it, because, uh, you should not assume that it’s a form or a standard or anything like that because often not oftentimes in fact, more and more it’s the case that it’s anything but standard.

Reese Henderson: (29:01)

Uh, there’s all sorts of things being put into lien waivers these days, uh, warranties are being buried in there. Indemnifications are being dumped in there. Uh, it, it’s almost a grab bag. So you need to, you need to assume, especially if it’s a general contractor that you’re not used to working with and they have, uh, they have forms that you’re not familiar with assume that there’s stuff buried in there and go on a hunting expedition defined it because, uh, you know, four times out of five, you’re going to find stuff that you did not expect to be there. Um, and then again, you know, if you, if you need to submit a payment application waiver so that you can get paid on that draw, make sure you include language, protecting claims. And even if they don’t leave a blank, you know, add an asterix in the margin and right below that, you know, uh, excluding the change order, uh, proposed change order for, for extended, uh, general conditions due to the delay of the framer, you know, or whatever you have to do to, you know, initial that change to, to the waiver, um, so that you can preserve that claim.

Reese Henderson: (30:06)

Um, and then, uh, make sure that you include that language in each subsequent release, because if you preserve it in one lane waiver for the month of September, let’s say, and then you sign October, November, and December’s lien waivers without that the, without an asterix. And without that, uh, you know, change without the pres preserving language, then you’ve just undid what you did, uh, by adding the, uh, you know, the qualification to the September lien waiver. All right. So make sure you do that. So now let’s talk about the last, uh, clause, and again, we’re, we’re, we’re here, uh, we’re going on 34 minutes. So we’re running just a little bit long, but let’s talk about this. This is a way to be proactive, um, as opposed to reactive on some of this stuff. So what is a right to stop work for nonpayment? Well, surprisingly, or actually not so surprisingly, most subcontracts do not allow for this.

Reese Henderson: (31:01)

It seems, uh, you know, self-evident, or, or, or fairly common sense that if you’re not being paid, you shouldn’t have to keep working, but most subcontracts don’t say that. So do you have the right to just pull off the job if, if you have three payment applications outstanding for the last three months, and you’re not getting paid well, if it does the subcontract, doesn’t say that you’re, you’re, you’re taking a risk. Um, you know, because maybe, maybe a later judge or jury will, will find that that’s perfectly alright, but the better practice is to have it in your contract. Um, so you know what, in fact, what you typically see in a subcontract, if it hasn’t been modified by the, by the subcontractor or his attorney is you typically see something that says, if there is any dispute with the general contractor, that you’re obligated to continue performing pending the dispute.

Reese Henderson: (31:56)

So, you know, not only does it not protect your rights, if you are not getting paid, but it actually affirmatively requires you to keep, keep performing. So, um, and of course, you know, where the subcontract does talk about defaults, you know, in default termination of a subcontract in almost every case, it’s talking about the default of the subcontractor now, not the general contractor. So it gives the subcu, the contractor, all sorts of remedies for, for how to cure your defaults, but it hardly ever addresses what happens if the contractor doesn’t pay so best practices to add something along the lines that I have here, which I call a failure of payment clause. And, um, this is loosely based on some language that came from the AIA standard contracts, but it basically says that if the contractor or in your case, you’d be the subcontractor, uh, who are actually it’s as if the contractor through no fault of the subcontractor fails to pay the undisputed amount due within 30 days, then the subcontractor may have one giving written notice, seven days written notice to the contractor, stop.

Reese Henderson: (33:03)

The work until payment has been received. So that gives you that, right? That, that spells it out. You’re not, you know, taking a flyer on whether a later judge or jury will agree with you. You actually built your building into the contract, the right to stop work. So anytime you can put stat that in the contract, it protects you. Um, but it goes further because it says, if that happens, you know, then you’ve had to demobilize and then you’ve had to remove Ally’s, which costs you money. So it goes further and says in such event, and again, if you don’t have this language in your subcontract, good luck getting it. But it says in such event, contract time shall be extended appropriately in the contract sum shall be increased by the amount of subcontractors re reasonable cost to shut down delay and startup. So this is a way to proactively give yourself the right to, uh, not only stop work, uh, if you’re not getting paid, but, but also, uh, if that, if you do exercise that, right, and then you have to demobilize weight and the remove allies that you would not only, uh, be protected from any claim of breach, uh, by the general contractor, but you would also be entitled to compensation for your demobilization and rehabilitation expenses.

Reese Henderson: (34:18)

So again, you will almost never find this in a subcontract drafted by the general contractor’s attorney. So you have to add it if you want to see that, uh, in your subcontract. So, uh, I could talk about a lot of other, uh, traps, but those are, those are some big ones that come up a lot. So, uh, with that, I’ll open it up for any questions.

Kathryn Barona: (34:41)

Yeah. We do have two questions right now, one from Carrie that says if our negotiations are included in our proposal, and our proposal is included in the subcontract as an exhibit, which document will hold weight. For example, a car subcontract has a pay when paid cause, but our proposal lists a 30 day condition. Is that enforceable.

Reese Henderson: (35:08)

So that’s a very good question. And the answer is, and this will be true in pretty much any state that you’re in. It’s going to depend upon what the contract itself says. So if the contract says a subcontractor’s proposal is attached as exhibit a, that’s great. But if it’s somewhere in a subcontract, it may say something like, uh, you know, if there’s any, um, conflict between the terms of this sub contract and the terms of any exhibits, the terms of the sub contract she’ll govern, or the terms of the sub contractual control. Well, then your exhibit is worthless than in that situation because they’ve provided. So, so you need to look for that in, in your contract. W you know, does it say anywhere, and what that’s referred to as is a, you know, order of priority of documents or something like that. So you need to look for that language and, uh, you know, change it, either strike it, or, or, or write in the margin that the proposal in the event of any conflict in terms of proposal, we’ll, we’ll go from. So that would be one way you could try to address that. Uh, but, but again, if you, if, if the, you know, you have to make sure there’s not a clause that, uh, would undo that in, in that fashion.

Kathryn Barona: (36:21)

Great. Thank you. And a couple of people have asked about the, um, materials, if there’s going to be recording. Yes, you’ll receive an email either tomorrow or Monday, probably tomorrow with the recording of this webinar, in case you joined late or missed anything want to review, it’s always going to be there on YouTube and our website, but we’ll be sure to get that to you in an email. And they, last question is from Tyrone of Florida over mediator that provides emergency services. Okay. Asked we respond to emergencies of commercial buildings who are leasing their facilities. Are there ways to protect oneself with a lessee?

Reese Henderson: (37:08)

That, that, that is an excellent question, Tyrone, and, uh, what the law in Florida provides in. And again, I can, I can talk for this about 10 minutes, but I don’t have that kind of time. So let me just say that in the case of a, of a tenant that, uh, generally speaking, you’re only going to have lien rights against that tenant. And so you could file a lien and it would be lean against the, basically the lease and the lease interest in the property. Uh, but, um, you know, I strongly suggest you talk to an attorney about that and get a better understanding of your rights in that situation. Uh, and it, cause there’s some things that you can do. Uh, and when I give talks on the lien law, I talk about some of these, uh, some of these, uh, tools that you have, uh, but there are tools in our toolbox, uh, that attorneys have for enforcing lien rights in these situations.

Reese Henderson: (37:58)

So, um, good question. Uh, you know, you’re showing some awareness and just, just keep pursuing that. And, and by the way, if anybody has any questions, uh, th that seen this seminar, and of course it has my contact information here, feel free to shoot me an email, or give me a call and, um, be happy to, uh, you know, subject to any conflict check. I have to put that out there. Uh, if anybody calls me, uh, I have to make sure you’re not calling about an existing client of our firm, but subject to that, be happy to help anybody out, uh, with any questions they may have.

Kathryn Barona: (38:33)

Thank you so much for that. And the whole presentation was very informative. Great. So thanks everyone. Hope you enjoyed it today, and you’ll be receiving the recording and the slides. All right. Thank you, Reese.

Reese Henderson: (38:48)

All right. Thank you guys. Have a great afternoon, everyone.