Re: Stop work as a result of non payment
I’m going to presume that your company is a subcontractor on the project, where the general contractor is withholding payments.
From the information provided, you are probably justified in stopping the work until the general comes current with your payments. Alternatively, you probably have the right to terminate the subcontract for non-payment. I emphasize the word probably, as this issue has generated a lot of litigation and varying results in various courts.
The right to stop work, or terminate the subcontract depends on whether the other side’s breach is material. In this context, material means crucial to the contract, or, put another way, a breach that goes to the heart of the intent of the contract. Failure to pay is usually material, whereas failure to have the lunch truck stop by is not.
In this case, the general’s failure to pay may very well be a material breach, either excusing you from future performance, or giving you the right to terminate the contract. Several factors are involved. The failure to pay must be a wrongful act, and not just a reasonable delay, or a delay due to a dispute over the amount due, or over the quality of materials and work provided, etc.
What you need to prove a material breach on the part of the general is, essentially, that required progress payments were not made when required, and that the general had no justification for failure to make those payments. It certainly sounds like that’s the case here where they are behind in contract sum payments as well as payments for approved change orders.
The general may be claiming that the owner has failed to make progress payments, and point to a pay-when-paid or pay-if-paid clause in the subcontract. Any such clause is unenforceable under some fairly recent case law. If that’s the argument on which the general relies, they have a problem.
You should be aware that several code sections allow for an interest penalty of 2% per month for failure to make progress payment after receiving funds form the owner allocable to the subcontractor’s work. This will be an issue if you have to litigate with the general.
I’d recommend a very careful review of the contract and the facts of the dispute to make sure that your decision to stop work is not itself considered a material breach. I would strongly recommend that you contact counsel experienced in construction litigation to review the situation and provide specific advice. Also, be sure that you watch the time frames carefully, and don’t lose your mechanics lien or stop notice rights.
I wish you all success.
Now the inevitable caveat:
The foregoing information is provided as an accommodation only, and does not constitute specific legal advice or a biding legal opinion based on a comprehensive review of all relevant facts, nor can provision of such information be construed as creating an attorney-client relationship.
