How Long Does A Contractor Have To Pay A Subcontractor

How Long Does A Contractor Have To Pay A Subcontractor

You just finished an exhausting month-long project as a subcontractor for a general contractor. Your crew worked hard to complete all the specified work on time, and you submitted your final invoice to the GC two weeks ago. But the payment you’re owed still hasn’t hit your bank account.

Sound familiar? If you’re a subcontractor, late payments from GCs can cause major cash flow issues and wreak havoc on your business. But before getting angry at the GC, you need to understand the typical payment timelines and your options for recourse. This guide will walk you through everything you need to know about getting paid as a subcontractor.

Deadlines for Contractor Payments to Subcontractors

As a subcontractor, when can you expect to get paid? There are a few typical payment structures:

  • You get paid only after completing 100% of the project work.
  • You get paid after the GC receives payment from the client.

In the construction industry, it’s generally standard practice for GCs to pay their subcontractors within 7-14 days after they themselves receive payment from the client or property owner.

But this timeframe can vary based on prompt payment laws and the specific language in your subcontractor agreement. So let’s break it down further.

Prompt Payment Laws

Prompt payment laws are legislation that requires timely payment on construction projects. They exist on both the federal and state levels.

For federally-funded projects, federal prompt payment laws state that:

  • GCs must be paid within 14 days of submitting a proper invoice for progress payments.
  • Final payments must be made to GCs within 30 days of invoice submission.
  • Once paid, GCs then have 7 days to pay their subcontractors.

Meanwhile, state prompt payment laws cover projects funded by state and local governments, as well as some private projects. The requirements vary by state, but most states mandate:

  • GCs must pay subs within 7-14 days of receiving payment from the property owner.

Be sure to look up the specific prompt payment regulations in your state. For example, in Florida subcontractors must be paid within 10 days of the GC being paid. In California it’s 7 days. And in Texas it’s 14 days.

Payment Terms in Your Contract

Aside from prompt payment laws, your subcontractor agreement with the GC will spell out exact payment terms. Two common formats are AIA and ConsensusDocs contracts.

For example, the AIA A401 subcontract states:

  • GCs must pay subs for progress payments within 7 days of being paid by the owner.
  • Final payment must be paid to subs within 7 days of the GC receiving final payment.

Meanwhile, the ConsensusDocs 750 contract says:

  • Subs are to be paid within 7 days of the GC getting paid by the owner.
  • Final payment is due to subs within 7 days of the GC getting their final payment.

So in summary, you can expect payment as a subcontractor within 7-14 days of the general contractor receiving payment from the property owner or client. But again, read your specific contract!

“Pay When Paid” vs. “Pay If Paid” Clauses

Some subcontractor agreements may contain “pay when paid” or “pay if paid” clauses. This language seems similar, but has big implications for when you get paid.

“Pay When Paid”

This clause states that the GC will pay you some reasonable period after they receive payment from their client. For example:

“Contractor will pay Subcontractor within 7 days of receiving payment from Owner.”

This language merely defers the timing of your payment, but still ensures you will eventually be paid.

“Pay If Paid”

This clause states that you only get paid if the GC gets paid by their client:

“Subcontractor will be paid only if Contractor is paid by Owner.”

This puts all the financial risk on you as the sub. If the property owner never pays the GC, you might not get paid either.

As a subcontractor, try negotiating these kinds of clauses out of your contracts whenever possible. They are heavily slanted in favor of the GC.

What To Do If Your Payment Is Late

Okay, so you submitted your final invoice to the GC. A month went by, which is way longer than the 7-14 day timeline we just talked about. You still haven’t been paid. What should you do?

You have several options for recourse when payments are late:

1. Send a Demand Letter

A demand letter is simple and direct. It states something like:

“Your payment of $5,000 to me is now 60 days late per our subcontractor agreement. I demand payment in full within the next 7 days or I will be forced to take further action.”

Often, a sternly worded demand letter is all that’s needed to get the gears turning on your late payment.

2. Send a Notice of Intent to Lien

If you didn’t get anywhere with a demand letter, the next step is to send a notice of intent to file a mechanics lien. This puts the GC (and property owner) on notice that if they don’t pay up immediately, you intend to file a lien on the property.

The notice might say:

“You have failed to pay my outstanding invoice of $5,000 for 30 days past our agreed terms. This letter serves as notice that if payment isn’t received within 10 days, I intend to file a mechanics lien on the property.”

This also lets the owner know payment to you is delinquent, which can light a fire under the GC.

3. File a Mechanics Lien

If your notice of intent doesn’t resolve matters, you can file an actual lien on the property where you performed work. This varies by state, but generally involves filling out paperwork with the county clerk and paying a small fee.

A properly filed mechanics lien forces the potential sale of the property to pay off your lien. Just the threat of a lien sale is often enough to get your payment released.

4. File a Lawsuit

If all else fails, you can file a lawsuit against the GC to recover your payment, plus interest, fees, and penalties. But lawsuits can be expensive and drag on. Only use this as a last resort.

Now let’s look at prompt payment deadlines and lien rights in a couple key states.

Prompt Payment in Washington State

If you’re a subcontractor in Washington, here are the rules:

For public projects, payments to GCs are due within 30 days of submitting a proper invoice. Once paid, GCs have 10 days to pay their subcontractors.

If payments are withheld due to unsatisfactory work, the GC must notify you within 8 days of getting your invoice. Once the issues are fixed, you must be paid within 30 days.

You can charge 1% monthly interest on late payments. If a lawsuit occurs, the winning party can recover their attorney fees.

Prompt Payment in Oregon

Here are the prompt payment guidelines for Oregon:

For private projects, owners must pay GCs within 14 days on progress invoices. Final payment is due within 7 days of the invoice.

For public projects, progress payments to GCs are due within 30 days. Final payment is due within 30 days.

Once paid, GCs must then pay their subcontractors within 10 days.

If payments are delayed past these times without cause, you can recover 1.5% monthly interest or more depending on your contract.

Don’t Let Late Payments Cost You

As a subcontractor, waiting 30, 60, or 90 days for payment can seriously harm your business. Don’t tolerate late payments from GCs – know your rights and promptly take action.

Follow up with demand letters, lien notices, or liens to apply pressure and incentivize payment. Just be sure to fully understand prompt payment laws and the terms of your subcontract before starting work.

With a savvy payment strategy in your back pocket, you won’t have to lose sleep worrying about getting paid on time ever again!