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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

www.FWHTLAW.com