The Risks of Using Criminal Statutes to Collect Construction Debts

By John Lockard

The failure to make payment on a construction contract may not only result in a claim for money damages in a civil lawsuit, but it may also result in a violation of a criminal statute. For example, Code of Virginia Section 43-13, [subscribers can access an enhanced version of this statute: lexis.com | Lexis Advance], makes it a felony to use funds received for a particular construction project for any purpose other than paying contractors or suppliers who provided labor or materials for that project. That code section expressly provides that the criminal charges may be brought against any officer, director or employee of a construction company that misuses funds meant for a contractor or supplier.

When a contractor has not been paid for work performed on a project, it can be tempting to contact the authorities and request that they bring criminal charges against the upper tier contractor who received funds, but failed to use them to make payment to subcontractors or suppliers. However, this is not always an effective strategy and carries some risks. The contractor may have a defense to payment if the work performed was not considered satisfactory. The person filing the complaint may also be exposing themselves to a claim of malicious prosecution if the courts determine that the claim was brought for an improper purpose and without probable cause. As a practical matter, many law enforcement agencies are reluctant to vigorously pursue criminal investigations of matters that they perceive to be “civil” in nature, like the failure to pay a debt.

Contractors should carefully consider the risks before contacting the authorities regarding the failure to pay a debt on a construction project. Any such claims should be supported by documentation of the payment history for the project and not just by the word of the complaining party. We strongly encourage all contractors to consult with an experienced construction attorney regarding the risks and benefits of pursuing criminal charges to collect a construction debt before contacting any law enforcement authorities.

These articles are meant to bring awareness to these topics and are not intended to be used as legal advice.

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