WHAT TO DO WHEN YOU ARE NOT BEING PAID
The most common issue I confront as a construction attorney is what to do when my client is not being paid. The standard approaches include sending a demand letter, making a demand for disputed funds to be placed in escrow in accordance with the prompt payment statute, and, of course, filing mechanic’s liens and/or bond claims. The larger issue becomes what to do when my client can no longer to perform its work without payment.
As a general rule, a contractor is better off completing its work, and then fighting about the monies due, as opposed to walking off the job. While it is true that there are Connecticut cases which hold that a contractor is excused from finishing its work if progress payments are not made when due, but reliance on such cases is fraught with potential problems.
If you ever forced to litigate, you want to be viewed as the one wearing the white hat. You want to be the injured party that is as pure as the driven snow. If at all possible, you do not want to give the other side any arguments to raise. Thus, if you walk off the job for nonpayment, the other side will claim that you wrongfully abandoned your contract.
An allegation does not have to be true to be alleged in court. There is broad freedom to make all sorts of allegations in pleadings without fear of consequences. All that is required for an attorney to file a claim, defense or counterclaim for a claim is that the attorney has a good faith belief in the claim or defense being asserted.
In construction contract disputes, very rarely are things black and white. Nonpayment issues may arise after claims for change orders and/or extensions of time, and a contractor’s entitlement to either may be a matter of opinion. Because no set of construction documents are perfect; not all conditions can be anticipated; and many things often happen that are beyond anyone’s control; there are many ways where parties can end up in a dispute and both believe in good faith that they are correct.
In light of the foregoing, finishing the work before commencing the dispute resolution process will put a contractor (or subcontractor) in the best position to succeed. Of course, economic realities do not always allow for that approach.
In situations where nonpayment issues prevent you from completing the work, you need to put yourself in the best situation possible before suspending your performance. The first step is to thoroughly review your contract documents and follow any required procedures. In addition (or, in the alternative, if there are no relevant contract provisions), it is never a bad idea to give the other party notice of your intent to stop working if payment is not made. Such notices should also point out that you are in full compliance with all contractual obligations and your position regarding any claims for delay, changed conditions, additional compensation, and/or an extension of time.
If you should have any questions about your particular situation, please give me a call at (860) 760-3317.