Subcontractor documents

Protect Your Business: Breaking Down the Subcontract

Attorneys write subcontracts for the General Contractor, NOT the Subcontractor. There are so many legal terms that are not easily understood. Subcontractors and materials suppliers must be aware of this and seek legal counsel before entering a contract and agreeing to unfair terms.

This blog will discuss essential topics every subcontractor needs to understand:

  • The importance of filing a lien
  • Change orders
  • Attorney fees and costs

Our previous blog from this month discussed three additional critical topics: subcontract documents, personal guarantees, and retainage.

Between these two blogs, we’ve gone over some of the most important details and dangerous clauses to be on the lookout for before you begin your next job. Ensuring your business is agreeing to a fair contract is necessary for helping you grow your construction business.

The Importance of Filing a Lien

When you are owed money, your first action is to ensure you get paid. Why wouldn’t you exhaust every effort to do that? By not filing a lien, you are not protecting yourself and your money, plain and simple.

Your lien rights are very important. When you are working on a project and are owed money without a lien, the only way you can collect is by suing the general contractor for breach of the subcontract for not paying you. That is an unsecured debt. Another example of unsecured debt is when you owe a credit card company for the money you spent at Home Depot; the only way they can collect their money is to put your file into collections and sue you.

On the other hand, with a lien, you have secured debt. When purchasing a house, for example, you borrow money from a bank, and if you do not pay the bank, they would kick you out of the house and sell it for the money you owed them. A lien works the same way. If you are not paid for labor and/or materials supplied to a construction project, and you correctly filed a lien; you can force the sale of the property to pay your lien.

Many deadlines must be met to file a proper lien, but there is no penalty for filing a lien early. Meaning if it becomes clear from certain circumstances that you will not be paid, no matter what phase the project is in, do not wait; file your lien immediately.

A lien gives you leverage. Any project that has construction financing must move from construction financing to permanent financing. Before a project can go to permanent financing, all liens must be taken care of. Even if the project is already in permanent financing, your lien will still have leverage. No owner wants a lien on their property, and they will pressure the general contractor to take care of any liens. Owners especially don’t like to get sued for foreclosure of a lien that is against their property.

Avoid costly litigation

The Cromeens Law Firm is here to protect you and your business. Our hope is that you never sign a subcontract that puts you out of business. Work with us to equip yourself with the ability to properly evaluate your risks and negotiate your next subcontract with greater confidence and ease.

What is a Change Order?

Do you like to work for free? That is what you are doing when you complete extra work without a written change order.

The change order provision in a subcontract allows the parties to increase or decrease the subcontract price. An increase in the subcontract price is generally due to work being added to the scope, and a decrease is typically due to work being removed from the scope.

All change orders should be in writing and done according to the subcontract provision that details the change order process. If you do extra work without getting a signed change order, you will not be paid for the extra work.

Request Extra Time

If the work requested by the change order will make it impossible for you to complete your scope of work by the deadline you committed to in the project schedule, make sure you request extra time be added to your completion date in the change order. Don’t assume that the general contractor should know it will take additional time. Make sure that if you are given extra time, it is in writing. A verbal agreement that you will be given extra time means nothing.

Get Paid for Your Work

This is business; make sure you are paid for all of the work you do, including the work that is added to your original scope of work. Read the change order provision in every subcontract before you sign it. If you do not understand, ask questions. It is not stupid to ask questions if you do not understand. It is ridiculous not to. Once you sign the subcontract, it will be too late.

Attorney Fees & Cost

You need to make sure that your subcontracts have a provision for attorney fees and that it allows you to recover your legal expenses.

If your subcontract does not have a provision that deals with attorney fees and costs, you may not be able to recover them. If the subcontract is silent as to the ability to recover attorney fees, you have to use the state laws that deal with attorney fees in order to recover them. If you were to sue a general contractor who did not pay you, you would sue them for breach of the subcontract. The laws that go with your claim for breach of the contract say that you can recover your fees, even if the agreement about fees is not in writing, but you have to give thirty days’ written notice before you file suit. The notice must state what you are suing them for and that you will be seeking recovery of your attorney fees. If you have a provision in your subcontract dealing with attorney fees, you do not have to send this notice.

Another significant issue is that under the current state of the law in Texas, if you sue an entity that is a Limited Liability Company (LLC) for breach of contract and you do not have a written provision in your contract dealing with attorney fees, you will not be able to recover them. Meaning if you have to sue a general contractor who is an LLC because they did not pay you, and you do not have a written provision calling for attorney fees, you cannot recover your attorney fees.

Conclusion

We hate feeling helpless for hardworking individuals. We hate seeing clients in legal disputes over the smallest of details. We hate seeing our clients lose money—sometimes their entire business—over language they do not understand. Call The Cromeens Law Firm today to avoid costly litigation and learn how to best protect yourself before it is too late!

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