PCCA Journal|4
th
Quarter 2010
22
the general that there is nothing to
worry about. Nevertheless, the re-
sults of the subcontractor not paying
its workers, sub-subcontractors, and
suppliers will be apparent eventu-
ally—at a time when it may well be
too late to do anything about it.
Compounding the Problem:
Perception Versus Reality
Many contractors who have never
been involved in a bond claim
or mechanic’s lien action may be
surprised to learn that a lower-tier
subcontractor or supplier (or even
an employee of a subcontractor)
may have a claim against the project
owner, the contractor, or the general
contractor’s bonding company for
the unpaid value of the lower-tier
subcontractor’s labor, materials, and
supplies, even though the contractor
has paid its immediate subcontrac-
tor for the labor, equipment, and
supplies. Yes, you read that right:
notwithstanding the fact that you
may have paid your subcontractor,
if your subcontractor did not pass
those payments down to its lower-
tier subcontractors and suppliers and
to its employees, those claimants
can, in effect, make you pay twice.
The perception among many
contractors is that if they get lien
waivers from their subcontractors,
they are protected. In fact, they are
not. The lien waivers that a con-
tractor needs for protection against
double payment are lien waivers
not only from its subcontractor, but
from all subcontractors and sup-
pliers of every tier. In many states,
even the subcontractor’s employees
and their unions are protected, so
that if the unpaid subcontractor does
not make contributions to the union
health and welfare benefit funds,
those funds have a claim against the
contractor’s payment bond or they
can file a mechanic’s lien against
the project. So, even though the
employees are being paid and are
themselves unaware that their union
benefits are not being funded, the
contractor who paid union scale to
its subcontractor may be required
to pay twice for those benefits if the
union perfects its claim. In fact, the
first sign that things are going awry
is frequently a garnishment sum-
mons from the union health and
benefit fund garnishing the subcon-
tractor’s rights to payment to satisfy
the obligation owed to the union for
unpaid benefits. The unions are vigi-
lant in prosecuting their rights, and
that vigilance has the unintended
benefit of often alerting the general
contractor to a problem the general
contractor did not know existed.
Too often however, at that stage, it
is too late to do anything to protect
oneself.
The 75 Percent Solution
There is no complete remedy to
Legal Watch
Continued from page 21
Gregory T. Spalj
A Lawyer serving the Power, Cabling &
Telecommunication Industries for over 20 years.
Contract Review
•
Bid Protests
•
Differing Site Conditions
•
Scheduling Claims
•
Entity Formation
•
Mechanics’ Liens
•
Bond Claims
•
OSHA Citations
•
Insurance Disputes
•
Construction Defects
•
612-359-7600
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