“Everything was going along fine and then I stopped getting paid. Because I had a prior relationship with the prime contractor I just kept working. Then I found out the project was shut down and the owner was out of cash. What do I do now?”
This is a common scenario for many subcontractors. In many instance it can turn into a subcontractor’s worst nightmare – no payment, unexpected legal costs and yet a continuing obligation to make payroll or pay lower tier vendors and suppliers. The first step in the legal assessment is to review the contract documents between the subcontractor and the prime contractor. Specifically the payment provisions are usually the focus of that initial assessment. Is it a “pay when paid” or a “pay if paid” provision? Does the payment provision merely fix a time for payment or does it actually shift the risk of the owner’s insolvency to the subcontractor?