By Bruce Jervis
Most project owners respect the contractual chain of command. Direct dealings are limited to the prime contractor(s) with whom they have a contractual relationship. Direct dealings with a subcontractor can hinder the owner’s ability to hold the prime responsible for the sub’s work or create an owner payment obligation to the sub.
Project owners occasionally drop their guard, however. It may be difficult to remain hands-off when a subcontractor is performing a key component of the work or is insistently demanding the owner’s attention.
On a recent private project, the owner made a direct payment to a subcontractor. The sub later had a claim for extra work but did not want to jeopardize its business relationship with the prime contractor because of the prospect of future work. The prime contractor was operational and fully capable of paying its subcontractors, but the sub recovered payment for the extra work from the project owner.
There are, of course, situations in which a project owner must deal directly with a subcontractor. An unpaid sub can disrupt the work and place a mechanic’s lien on a private construction project.
One method of paying a subcontractor while maintaining the contractual chain is a joint check agreement among the owner, the prime contractor and the subcontractor. The owner agrees to the one-time issuance of a check payable jointly to the prime and the sub. The parties expressly agree that this does not create a contractual relationship between the owner and the sub. Are there other techniques for dealing with these situations? Your comments are welcomed.
