Everyone’s heard the safety message, "Stop, drop
and roll." It’s one of those simple sayings that you’re supposed
to be able to remember — even if you’re on fire! This well-known
safety message conveys a simple solution to a pretty dramatic problem.
Wouldn’t it be nice in the construction industry if we could, when we
were not paid on time, just stop work, drop everything and roll away from
the project until the progress payment (plus additional costs for stopping
work) arrived? Dealing with slow payment is not as simple as "stop,
drop and roll," but stopping work can be a critical, effective tool
when properly wielded.
You may be nervous about proposing the right to stop
work in a subcontract agreement. Don’t be. Most general contractors
preserve the right to stop work for delayed owner payment. Of the major
model contract documents that deal with the relation between the owner and
its general contractor/construction manager, all but one contain
provisions dealing with the ability to stop work.
You should consider incorporating the right to stop
work in your written agreements too. The American Institute of Architects
A401-1997 document, ASA’s Addendum to Subcontract (2003), the
Associated General Contractors of America 650 (1998) document, and the
Design-Build Institute of America’s 570 (2001) document all give the
subcontractor the right to stop work with appropriate notice.
In a very small number of states, such as Arizona and
New York, state laws provide a "bright-line" test so
subcontractors know precisely when they may stop work for nonpayment,
including cases where a subcontract includes a pay-if-paid provision and
the owner fails to pay. In other states, incorporating the right to stop
work directly into your contract should make it "crystal clear"
when and how you may exercise this right.
Should Subcontractor’s payment be delayed because (a)
Owner fails to make timely payment of amounts certified and approved, or
(b) Contractor fails to make timely payment after receiving funds from
Owner for Subcontractor’s work, or (c) because Owner declines to approve
or certify payment for reasons not the fault of or directly related to
Subcontractor’s work, then Subcontractor may suspend work after giving
at least five (5) days written notice to Contractor of the intent to
suspend and the date of intended suspension. Should the Subcontractor’s
work be thereafter suspended for at least 21 days, Subcontractor may
terminate this subcontract upon written notice of termination to
Contractor.
Paragraph 19 of the addendum also provides for
reimbursement of the cost of suspension, including de- and
re-mobilization. Whatever language you use, it should be clear that
suspension of work and termination of the subcontract are different
things. After all, you don’t want the contract to end if your purpose
was to get paid and continue your work!
