Cases of a general contractor withholding payment from a subcontractor are not uncommon. Subcontractors often take legal action against contractors for refusing to pay. So, is withholding payment legal? And what can a subcontractor do?
Here is what you should know:
When can a general contractor withhold payments?
A general contractor can legally withhold payment from a subcontractor in certain circumstances as governed by state laws. Texas law allows a contractor to do so only when a good-faith dispute exists regarding the work.
Generally, a contractor in Texas is required to pay a subcontractor within seven days of receiving payment from the property owner. However, when a good faith dispute exists regarding the quality of work, performance, obligations or the amount owed, payment can be withheld or delayed.
For instance, if a subcontractor:
- Installed materials that failed to meet industry standards or the contractor’s specifications
- Performed labor that failed to meet building codes
- Failed to finish their scope of work
- Caused physical damage to other parts of the construction site because of poor scheduling or workmanship
- Caused project delays
- Failed to pay material suppliers or sub-subcontractors
- Performed extra work without a fully executed, signed change order
Such mistakes can significantly impact a project’s quality, timeline and budget. Nonetheless, a contractor can simply claim a mistake to withhold payment. They must establish a good-faith dispute.
What can a subcontractor do?
When payment is withheld, a subcontractor can challenge the decision. They can file a mechanic’s lien against the property. By gathering solid evidence that disproves the contractor’s claims, a subcontractor can recover what they are owed.
Withholding payments in the construction industry is one of the most common disputes. If you are in such a dispute, consider legal guidance to make informed decisions to protect yourself and your career.
