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Why do contractors delay payments for subcontractors?

On Behalf of | Apr 25, 2023 | Construction Law |

Construction projects are pricey not just because of the materials needed but also because of the labor involved. For large projects, it’s not unusual to see contractors reaching out to subcontractors to handle certain specialized aspects of the construction, such as electrical wiring and plumbing.

In an ideal world, everyone involved in a construction project – from the architect to the subcontracted electrician – gets adequate pay on time. But there are occasions when a contractor delays or outright refuses to pay the subcontractor. Why does this happen?

Legal reasons to withhold payment

Sometimes, a contractor can hold off payments for a subcontractor for legitimate reasons. These include:

  • Contract violations: If the subcontractor violated any terms they and the contractor had initially agreed upon.
  • Substandard work: If the contractor has reason to believe the subcontractor has not performed their job to meet standards that both had agreed to.
  • Disputes: Contractors may be stuck resolving claims arising from a subcontractor’s work and, in such cases, may refuse to pay the subcontractor until such claims are settled.

In these cases, a subcontractor should engage with the contractor before taking any legal action. A simple email reminder of the contract and any relevant project documentation should allow a contractor to explain why the payment is taking long.

Other notable reasons for payment delays

There are other reasons for payment delays, though contractors can be held liable for such things. They are:

  • Project owner delays: Perhaps the contractor is facing payment delays of their own because they’re stuck waiting for the project owner to pay for the construction.
  • Issues with project financing: Related to the point above, a project that has trouble securing a loan could have difficulty paying for every subcontractor involved.
  • Post-COVID-19 complexities: With most businesses turning to a remote or hybrid model, it can cause delays in how a contractor processes its payments.

Regardless of the reasons for the delayed payment, subcontractors should still try to handle the issue by talking with the contractor first. If talking it out does not resolve the matter, only then should a subcontractor file a mechanic’s lien with the help of a lawyer.

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