By Bruce Jervis
Many states provide payment protection for subcontractors and suppliers on private projects not covered by public works payment bonds. This payment security mechanism is commonly called a “stop notice.” The unpaid sub formally notifies the project owner it is owed money by the prime contractor. The owner is then statutorily obligated to withhold that amount from the contractor pending formal resolution of the matter.
The Mississippi Stop Notice statute has run afoul of the U.S. Constitution. A federal appeals court noted the law’s “profound lack of procedural safeguards.” A contractor’s payment under the prime contract could be withheld for an extended period of time based essentially on the unilateral say-so of a disgruntled subcontractor. This deprived the contractor of a significant property right without due process of law.
The Stop Notice laws vary from state to state and afford varying degrees of procedural protection. Almost all impose civil penalties for willful filing of a false notice. But the federal appeals court said this was a modest safeguard which “carries little weight as an acceptable buttress against erroneous deprivation.” It is probably safe to say that other state statutes have the same procedural infirmities as the Mississippi law.
What has been your experience with Stop Notice laws? Are they an appropriate payment protection for subcontractors and suppliers? Or, are they one-sided and unfair to prime contractors, primarily providing leverage for subcontractors in disputes? I welcome your comments.
