I am truly grateful that my buddy Craig Martin (@craigmartin_jd) continues his great posts over at The Construction Contractor Advisor blog. He is always a good cure for writer’s block and once again this week he gave me some inspiration. In his most recent post, Craig discusses a recent Indiana case relating to the ever present issue of termination by a subcontractor for non-payment. In the Indiana case [enhanced version available to lexis.com subscribers], the court looked at the payment terms and determined that the subcontractor was justified in walking from the project when it was not paid after 60 days per the contract.
This result was the correct, if surprising. Why do I say surprising? Because I am always reluctant to recommend that a subcontractor walk from a job for non payment if it is possible to continue. This is not so much for legal reasons (not paying a sub is a clear breach of contract by a general contractor) but practical ones. The practical effect of walking from the job is that the subcontractor is put on the defensive. Instead of arguing later that it performed but was not paid, that subcontractor is put in the position of arguing that the general contractor cannot collect its completion related and other damages because it breached first. This is a more intuitively difficult argument and one that is not as strong as the first.
Of course, all of this is contingent on the language in your contract (is there a “pay if paid” or language like that in the Indiana case?).
Here in Virginia, like in Indiana, the contractual language is key to any analysis of this issue. As I have said here at Musings almost ad nauseum, the contract under which you work at a construction project is one of the, if not the, most important document on that job. Each word will be given meaning and each word can make a big difference in the outcome (this is true even to the point of having a preemptive waiver of mechanic’s lien rights be enforceable). As the Indiana case shows, this strict enforcement of the contract, contrary to some popular belief I have heard, can actually benefit downstream subcontractors when the language of the contract is carefully drafted, preferably with the early counseling of an experienced construction attorney. With the proper drafting, a construction contract can and should set out a good set of rules for the project that all can live with. Had the contract in that case read differently, the result likely would have been different.
In short, always think hard before walking from a project and always make sure you know your contract before you do.
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