If a general contractor fails to pay you (a subcontractor) for work performed or services provided, does the subcontract allow you to stop work? Many general contractor proprietary subcontracts are likely to be silent on a subcontractor’s ability to stop work for nonpayment. The American Subcontractors Association provides members with the information they need to negotiate a particular subcontract clause, including ASA-recommended language, samples of what a subcontractor may see in a client’s proprietary subcontract, an explanation of the impact of poor language on a subcontractor, negotiating tips, and sources for more information.
Without specific language in the subcontract, the subcontractor is left with the ambiguous and unpredictable “common law” right to stop work and only if nonpayment constitutes a material breach by the contractor. Stopping work can be extremely risky without specific language because of courts’ wide-ranging views, and can be risky if the subcontract prescribes liquidated damages for unexcused delays. ASA recommends subcontractors include language such as:
“Should Subcontractor’s payment be delayed because (a) Customer fails to receive timely payment of amounts certified and approved, or (b) Customer fails to make timely payment after receiving payment for Subcontractor’s work, then Subcontractor may suspend work after giving at least seven (7) days written notice to Customer of the intent to suspend and the date of intended suspension. Should Subcontractor’s work be thereafter suspended for at least twenty-one (21) days, Subcontractor may terminate this subcontract upon written notice of termination to Customer.”
If the general contractor argues, “I can’t worry about you stopping work” or “This is an unreasonable request,” the subcontractor can counter with, “Why worry that I have the right to stop my work for nonpayment? If you pay on time, this becomes academic anyway.” The subcontractor could also respond, “I’ve agreed to give you all sorts of rights if I foul up. I need the same right if you default.” If the general contractor persists, “I just don’t get why you think you need this,” the subcontractor could argue, “I don’t have enough money to throw ‘good money after bad’ if payments dry up or if the job shuts down.” Sometimes general contractors insist, “This isn’t industry practice.” On the contrary, a subcontractor could reply, “What I’m asking is in line with what both ConsensusDocs and AIA documents say is fair, and these forms reflect current industry practice.” Read More.