Construction Litigation

"WHERE THE RUBBER MEETS THE ROAD."

Most privately-funded construction projects involve the property owner, or in the event that the subject property is mortgaged, the lender, paying the general contractor for the labor and materials that have been furnished to the project.  In order to be paid by the owner or lender, the general contractor makes periodic requests for payment known as requisitions.  Upon receipt of a requisition, the owner or lender will, in turn, make a progress payment that coincides with certain stages of completion as set forth in the prime contract.  These payments, however, are contingent upon inspection and approval of the work by the project architect.  Once paid, the general contractor then pays the subcontractor, who, in turn, will pay any suppliers who have furnished materials to the project.  Before the general contractor will pay the subcontractor, though, the general contractor will insist upon receipt of a so-called “mechanics’ lien release.”  Generally speaking, the mechanics’ lien release will state that the subcontractor is unconditionally relinquishing the statutory right to encumber the subject property even though payment has not yet been received.  The practice of signing a mechanics’ lien release, without conditioning the release upon the actual receipt of payment by the subcontractor, results in the loss of significant leverage and leaves the subcontractor in the unenviable position of having to chase down the general contractor for payment.  Moreover, once the subcontractor has been stiffed, it generally results in the subcontractor defaulting on the subcontractor’s obligation to the pay the supplier.  While a material supplier or a lower-tiered subcontractor, i.e. a subcontractor of a subcontractor, may still have mechanics’ lien rights against the subject property if not a signatory to a mechanics’ lien release, in Massachusetts if the person claiming a lien has no direct contractual relationship with the general contractor, the amount of such lien shall not exceed the amount due or to become due under the subcontract between the general contractor and the subcontractor whose work includes the work of the person claiming the lien unless the person claiming such lien has, within thirty days of commencement of his performance, given written notice of identification by certified mail return receipt requested to the general contractor.  Given the reality that most subcontractors material suppliers do not file mechanics’ liens as a prophylactic measure, but instead wait until much later in the life of the project when there arises a legitimate concern over payment, the possibility of a second-tier mechanics’ lien being successful without having first having sent the requisite Notice of Identification process is exponentially low.

While there are certainly instances where a property owner breaches the prime contract by unjustifiably failing to pay the general contractor, it is a far more common scenario that the general contractor does not pay a subcontractor who is legitimately entitled to payment.  In many instances, the nefarious reason for stiffing the subcontractors on a particular project is the general contractor's "cash flow" problems.  In essence, the general contractor is diverting funds earmarked to pay the subcontractors to some other project or business expense, or perhaps even worse, to pay the general contractor's personal expenses.