How to Collect Unpaid Fees on a Construction Contract

If you have been around the construction industry long enough then you know that payment disputes are part of the package. But how do you make sure that you do everything necessary to give yourself a chance to actually collect? Follow these steps and you will be headed in the right direction.

1.  Don’t Do Any Work Without A Written Contract

If you are doing home improvement work then this is a statutory requirement. No written contract will make it very difficult, if not impossible, to collect payment. Even if you are not doing home improvement work, set out your contractual terms at the beginning to make sure everyone is on the same page and the terms cannot be changed once a problem develops.

2.  Remember Your Lien Rights

Most contractors have heard of mechanic’s liens but not all of them know how to properly use this powerful tool to help in the payment process. If you are not paid for your work then you have a right to file a mechanic’s lien. There are basically three types of mechanic’s liens that you need to concern yourself with in New York: 1) a mechanic’s lien for a single family dwelling (must be filed within 4 months of last materials furnished or services performed); 2) a mechanic’s lien against any other private property (must be filed within 8 months of last materials furnished or services performed); and 3) a mechanic’s lien against a public improvement (must be filed within 30 days of the public entities acceptance of the project). I recommend that you hire an attorney or a lien service to take care of the mechanic’s lien filing for you because it is a very strict process and even the smallest error on the lien could void it.

3.  Submit A Payment Bond Claim

In New York, almost all, if not all, public projects are covered by a payment bond issued by a surety. The payment bond will pay you any unpaid contract sums in the event that the contractor that hired you does not pay. Of course, if there is a reason that you were not paid (defective work for example) then the surety does not necessarily have to pay until the dispute is resolved. Some private projects also have payment bonds. Before you start a project, inquire as to whether there is a payment bond. If there is a payment bond, get the information before you start work. It is much easier to get the information before there is a problem. Make sure to get a copy of the bond, the name of the surety, the bond number and any claim submission procedures.

4.  Try Negotiating

Whether you were not paid by the general contractor or the owner, you should try contacting them to negotiate a settlement on paying your balance owed for the project. Perhaps there are only a few disputed issues and if you are both willing to concede certain points you may be able to reach a settlement sum that is acceptable to everyone involved. Remember that litigation or arbitration are expensive and time consuming so if you can settle before incurring those fees, it may be worth it to take a small “hair cut” on the project.

5.  Arbitration or Mediation

If you have tried negotiating, filed a mechanic’s lien and submitted a payment bond claim and still not been paid, then your only option is to proceed with a legal claim. Now is the time to read your contract. It may require you to submit the claim to binding arbitration rather than litigation. If that is the case, you probably now need to contact an attorney to make sure that you submit the arbitration claim the right way and start putting your case together. Some contracts also require mediation before arbitration and/or litigation. You may have to try your hand at mediation before you can proceed to the arbitration or litigation.

6.  Litigation

This step is really on the same level as arbitration it is just an alternative method to resolve the dispute. Arbitration though is not always a viable option, litigation is always permissible unless you have a binding arbitration clause in your contract. Whether it is litigation or arbitration you probably need to prepare for the long haul. Litigation (and arbitration to a lesser extent) is expensive and time consuming. Hopefully you protected yourself in that initial contract to give yourself the best shot at winning once you reach this stage.

Vincent T. Pallaci is a New York construction lawyer.  For more information on enforcing your rights under your construction contract please visit us at http://www.nyconstructionlaw.com/ or contact me at vtp@nyconstructionlaw.com.

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