General Contractors and Mechanics' Liens
The GC Hires and Pays Plumbers and Roofing Subcontractors and More
Mar 18, 2009
A general contractor (GC) takes responsibility for the entire construction contract, pulls the building permits, and hires the roofing contractor, pumper, licensed electrician, finish carpenter, painter, and other trades. He is also responsible for paying them.
But when the payments fail to filter down to the various craftsmen, they can file mechanics' liens against the homeowner, forcing him to pay twice for the same work.
Put the Construction Contract in Writing
Like any other work for hire, a formal written contract spells out the issues and responsibilities of the individuals involved and protects both parties. The contact should be legally binding and address not only the work to be done and quality of building materials to use, but also the pay schedule.
When contracting for a home renovation or repairs resulting from a natural disaster, the homeowners insurance policy may issue a check to the homeowner before the work begins. But the contractor should never be paid up front for work not completed.
How to Schedule Payments to a General Contractor
Depending on the scope of the remodeling project, the number of payments can vary. For small jobs like interior or exterior painting, replacing carpeting, or installing laminate flooring, payment may be made in a lump sum at the end of the job, after inspecting the work and signing off on it.
Larger construction jobs typically include several different trades and take more time to complete. Even a kitchen or bathroom remodel will involve electricians, plumbers, and tile setters. These jobs may drag on for weeks or months.
In this case, payment should be made in weekly “draws”. At the end of each week, a payment should be made to the general contractor for the percentage of work completed and accepted. In many cases, this will be made done after the building inspector visits and signs off on the building permit, verifying that the work is up to code.
The GC is responsible for paying his employees and subcontractors.
How the Homeowner can Protect Himself from Subcontractor Mechanics' Liens
- Pay with a check and get a receipt; never use cash.
- Be sure the GC is bonded and insured; ask to see proof in writing.
- Put the GCs payroll responsibility in the contract.
- Make sure the GC and subcontractors sign a “Waiver and Release” form, or the equivalent document in the state or municipality.
- File a “Notice of Completion” which limits the time period in which an attempt to file a lien can be made. This is called a “Notice of Cessation” in some areas.
The Subcontractor is not the Bad Guy
If a subcontractor attempts to file a lien, it's not a personal attack. Fly-by-night general contractors can usually be identified by a shoddy track record and get by by hiring subs that are just getting started in business and gullible.
This is why it is so important to check out any builder with the BBB before agreeing to anything.
This article is not legal advice, but just a common sense approach to avoiding financial trouble.
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