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Do I have to pay my subcontractor?

Running your own contracting business in North Carolina is both exhilarating and rewarding. You deal with many people who have a variety of skills, and you work together to see a project to its completion. However, you probably can't remember a project where there hasn't been some problem. Whether a minor setback or a major conflict, as the contractor, it is your responsibility to resolve the issue and keep the project on schedule.

Most of the subcontractors you work with take pride in their craft and the reputations of their businesses. However, you may find yourself working with someone who does not seem as committed to quality as you or your client. Of course, pay is a universal incentive, and you may wonder if you have the right to withhold pay from a subcontractor who doesn't perform as you expected.

When can I withhold payment?

Your first line of defense in any business decision is your contract. Setting forth clearly delineated terms before the start of the project will assist in establishing how you can react to certain situations along the way. Your contract can include specific instances when you will have the right to withhold payment. The most frequent reasons for not paying a subcontractor include the following:

  • Delayed completion: If the subcontractor did not complete the work within the agreed upon time frame, it may hinder other subcontractors from beginning their portions of the project. This sets the entire job behind and ultimately costs you money. While you cannot withhold the entire amount for a project delay, your contract can stipulate financial penalties that accumulate daily.
  • Poor quality work: If you discover along the way that the subcontractor's work does not meet the agreed-upon standards, you may be within your rights to withhold pay for the balance of the work.

One important clause in your contract may be a pay-if-paid clause. This states that you may withhold payment to your subcontractors if your client fails to pay you for the job. Without this clause, your subcontractor may place a lien on the property or sue you for payment. Not all subcontractors will agree to have a pay-if-paid clause in their contracts.

Allies at your side

Since you will be working with subcontractors during many larger projects, having a solid contract in place can prove valuable. It is wise to seek legal advice when composing your contract and to build a strong relationship with an attorney who can be there to help you resolve any conflicts related to your contracts.

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