What should the subcontractor do when the main contractor is late in payment?

In the construction industry, delays in payment by the main contractor to the subcontractor are common and can have serious impacts on the subcontractor’s operation and finance. When faced such a situation, the subcontractor must take certain steps and develop strategies to protect their rights. This article provides a detailed analysis of the steps a subcontractor should take when the main contractor delays payment, along with the legal and practical measures to consider.

1. Checking the payment capability

Before taking any action, the subcontractor should verify the payment status to ensure that their claim is justified. This step includes:

• Review the contract and payment records: The subcontractor should review the signed contract, invoices, and related documents to identify the payment terms, amounts, and deadlines. This will confirm the payment request is appropriate, accurate, and comply with the contract.
• Identify the cause of delay: Determine the specific reasons why the main contractor has not made the payment. This could be due to the main contractor’s financial issues, delays in payment approval, or other disputes related to the contract.

2. Send a formal payment request

If the subcontractor confirms that the payment delay is unjustified, the next step is to send a formal payment request. The content of the request should include:

• Specific information: Clearly state the amount due, related invoices, and the elapsed time. The request should explicitly reference the legal grounds and relevant contract terms related to the main contractor’s payment obligations.
• Payment deadline: Provide a specific deadline for the main contractor to make the payment or respond with a payment plan. This deadline should be calculated reasonably, allowing the main contractor sufficient time to meet the request.
• Method of delivery: The payment request should be sent through a verifiable process, such as registered mail or email with a read receipt. This ensures that the main contractor receives the request and allows for proof of delivery if necessary.

3. Engage in negotiation and mediation

In many cases, negotiation and mediation can effectively resolve payment delays. The subcontractor should:

• Initiate direct contact: Proactively contact the main contractor to discuss the payment issue. Negotiations can help clarify the reasons for the delay and find a reasonable solution.
• Propose a new payment plan: If the main contractor is facing financial difficulties, a new payment plan or alternative solution may be proposed to support both parties. The terms of the new payment plan should be documented and agreed upon in an amended contract.
• Issue legal warnings: The subcontractor should warn the main contractor of the potential legal consequences if they continue to violate payment deadlines. This warning could include the possibility of legal action, claim for damages, or other legal measures to protect the subcontractor’s rights.

Through negotiation and mediation, the subcontractor can not only resolve the payment delay but also maintain a good working relationship with the main contractor while ensuring their rights are protected.

4. Review guarantee term

The subcontractor should review the insurance and guarantee provisions related to the contract. If the contract includes a payment guarantee or insurance for delayed payment, the subcontractor can request the guarantor to fulfill the bonding obligations. Key points include:

• Determine entitlements: Review the guarantee or insurance provisions to identify entitlements and conditions for claiming the bond.
• File a guarantee claim: Follow the correct procedure and regulation to file a guarantee claim to recover the necessary funds.

These measures not only help the subcontractor protect their financial rights but also ensure that the contract is performed according to the commitments of the parties involved. TNTP has also published detailed articles on this topic, providing additional useful information for subcontractors.

5. Suspend or cease work

In some cases, the subcontractor may consider suspending or ceasing work until payment is received. However, this step needs to be carefully evaluated. This action must be performed according to the contract terms to avoid legal risks. Important points to consider include:

• Compliance with contract terms: Ensure that the suspension of work is carried out by the agreed terms in the contract and notify the main contractor in writing.
• Anticipate and assess consequences: Evaluate the potential legal implications of suspending work, such as impacts on the project schedule and the relationship with the main contractor. In some cases, the main contractor may use the suspension as a basis to continue withholding payment and seek compensation.

6. Take legal action

If negotiation efforts fail, the subcontractor may need to resort to legal action to recover the debt.

• File a lawsuit with the appropriate dispute resolution body: The subcontractor may file a lawsuit to demand payment at the court or arbitration center, depending on the prior agreement between the parties. The subcontractor should consult with legal counsel or the company’s legal team to ensure sufficient evidence and understand the necessary legal steps.
• Enforcement of judgment: If a valid court judgment or arbitral award has been issued, and the main contractor does not voluntarily comply, the subcontractor may request the enforcement authority to use its powers to take enforcement measures against the main contractor or obligated party to recover the debt.

Throughout this process, the subcontractor should seek support from legal counsel to receive appropriate and practical advice for the specific situation.

The main contractor’s delay in payment can create many challenges for the subcontractor, but with proper preparation and reasonable actions, the subcontractor can effectively protect their rights. Implementing these steps not only helps resolve the payment issue but also ensures that the subcontractor’s rights are protected, and the situation is resolved fairly and reasonably.

This article, “What should the subcontractor do when the main contractor is late in payment?” is brought to you by TNTP. We hope this article proves helpful to our readers.

Respectfully,