Navigating Payment Disputes in Construction:  How Joe Tolbert Can Protect Your Business

In the dynamic world of construction, payment disputes can significantly derail projects, tarnish reputations, and strain business relationships. These disputes often stem from contractual misunderstandings, work scope changes, or delays in project timelines. However, when contractors and subcontractors cannot get paid promptly, they have several options in Texas. The following is an overview of some of these collection methods.

File a Mechanic’s Lien:

A contractor may have the right to file a mechanic’s lien on the property where it performed work. However, before filing a mechanic’s lien, the contractor must send timely notices of intent to lien to specified parties, such as the party the contractor contracted with, the general contractor, and the property owner. These notices warn that a lien will be filed if payment is not made within a specified time frame.

If the contractor remains unpaid after these notices, the contractor can file a mechanic’s lien, which may allow foreclosure on the property in a lawsuit. Regardless, it is essential to know that strict deadlines and requirements must be followed when filing a mechanic’s lien.

File a Bond Claim:

If the project involves a payment bond, the contractor can file a bond claim against the surety bond. This is a common method for pursuing payment on public projects, where a payment bond is often required.

Like lien notices, bond notices must be sent timely to specified parties, including the bonding company. As a result, if a contractor knows a payment bond is in place, at the beginning of its work, it should demand the name and contact information of the bonding company so any needed notice can be sent.

Negotiate or Mediate:

If the parties agree to do so, attempting to resolve payment disputes through negotiation or mediation can be helpful. These procedures can involve discussions between the contractor and the property owner to find a mutually agreeable solution without legal action. But, when pursuing a negotiated settlement, a contractor must remember to send any required lien or bond claims so the contractor does not lose its lien or bond rights.

File a Lawsuit/Arbitration:

Contractors may file a lawsuit in a Texas civil court or, if required, bring an arbitration claim to pursue payment. Because arbitration requirements are standard in construction contracts, contractors should check to see if it is required to arbitrate rather than litigate. Regardless of where the claim is brought, the party seeking payment usually brings a claim based on breach of contract or other applicable legal grounds. Before filing a lawsuit or arbitration, it is advisable to consult with a construction attorney.

Prompt Payment Laws:

Like many other states, Texas has prompt payment laws that establish timelines for payment after invoices are submitted. If the owner or general contractor violates these timelines, the unpaid party may be entitled to interest, attorneys’ fees, and other remedies. Contractors should be aware of these regulations to ensure timely compensation.

Stop Work or Suspend Performance:

Depending on the terms of the contract and applicable laws, the contractor may have the right to stop work or suspend performance if payments are not being made. This could be a strategic move to encourage the owner to address payment issues promptly.

Joint Checks:

Unpaid parties other than the general contractor may be able to arrange for the owner to make payments jointly to the general contractor and subcontractors or suppliers. This remedy helps ensure that subcontractors and suppliers receive their share of payments from the owner.

Conclusion:

General contractors must carefully review and negotiate contract payment terms, understand relevant state laws, and maintain accurate documentation of work performed and costs incurred to protect their interests and ensure fair compensation. Consulting with legal and financial professionals can also help them navigate the complexities of payment processes in the construction industry.

Joe Tolbert, a seasoned Fort Worth construction attorney, brings his years of experience and board certification to the forefront in resolving these disputes, ensuring your business remains on solid ground.