Nine Things to know about subcontractors

In the construction industry, when a property owner hires a contractor for the building or renovation of the property, the contractor’s company is responsible for the completion of work. Contractors will often hire sub-contractors to help in work execution, but the prime contractor hired by the property owner is ultimately liable for work completion, subsequently, sub-contractors are liable to the prime contractors and not always to the property owner. There is something called "privity of the contractor" which is applicable for sub-contractor to the prime contractor and prime contractor to a client. 

1. The general contractors are responsible for paying their subcontractors, even if the property owner’s payment is delayed. Typically, the subcontractors don't get paid until the general contractor is paid by the property owner, but this is not how it works legally. In fact, a common clause in a legal contract between a general contractor and a subcontractor that states that the general contractor seeks to absolve himself of liability for payment until the client has paid him is usually voided, as it runs against public policy.

1. The presence of sub-contractors on the work premises should not be a secret. They are equally entitled to file a mechanics lien if they have not been paid. Owners should be aware of their work and the people who are hired to work on the property.

1. The county clerks have no way of knowing whether the general contractor has been fully paid or not, therefore, the filing of the mechanic's lien affidavit can still take place. A mechanic's lien may be accepted for filing, but if the property owner shows the general contractor has been paid, that may be a basis for vacating the mechanic's lien. For this reason, lien waivers and partial lien waivers are so important.

1. The money a general contractor is paid for the work done by sub-contractors is considered to be "in trust" money. If general contractors use these "trust funds" for personal expenses, pay their own rent or buy a new car it would be traced, and the general contractor will be liable for violating the trust and flow.

1. Even if the general contractor is a corporation, a sub-contractor can sue the contractor as an individual to give his accounting concern and explain why they are not being paid. The subcontractors can start a mini class-action lawsuit as the beneficiaries of that trust fund.

1. Nowadays, it is easier to bond mechanics lien compared to the past. The applications are usually handled by the clerks. The general contractor must show assets of 110 percent of the amount of the lien to obtain a bond.

1. Insurance policies for sub-contractor - if any of the workmen is injured and if there is no written policy, they will be treated under the general contractor's policy. The expenses will be borne by the general contractor for any loss pertaining to its policy.

1. If a subcontractor agrees to obtain general liability insurance naming the client and the general contractor as additional insureds, he must do so before any work has started and not after. If insurance is purchased after, and an accident occurs, it may not be covered under such a policy. The subcontractor may also be subject to a lawsuit for breach of contract for failing to obtain the coverage required under the contract. The subcontractor should show the insurance broker the required coverage by contract to avoid future problems. 

1. Unfortunately, subcontractors rarely spend the time to have properly drafted contracts. General contractors should be equally concerned about subcontractors having appropriate contracts. A telephone call saying, "Start on Monday" or a brief purchase order is not sufficient to legalize the agreement between parties.