I think nonpayment or unreasonably slow payment should be a civil matter. Speaking as a small Sub-Contractor, this would be only after all other recourse to collect payment have been exhausted.
Posted by: Miles - Friday, April 18, 2014 10:02 AM
I think that question requires a great deal more context as it relates to the example provided. There must have been an aweful lot of money involved to be able to expend that much effort (i.e., legal cost) to make the case. Or, I would imagine a contractor in turmoil with a former employee and a bread crumb trail for the impacted subs. If, as a GC, there is a project that is caught in dispute between any combination of owner/ prime/ sub it is imperative to contain that dispute to the project for the beneift of other unrelated projects and the prime corporation entity. It's ugly. But the only saving grace is consistentcy in applying the bad news to those involved in that particular project. Appropriate cost accounting methods and clear contract documents are neccessary to effect this. That being said, if the GC had been paid, but had issues for which the impacted subs had not yet be fully liquidated or resolved, it's hard to say that he has to stop living and running the business until they are resolved. That can take some time depending on the issue. That's not exactly intent to defraud - even if he is "living out of the business" and buying boats and jet-skis. If there are multiple bad projects and the cumulative effect takes the GC out of business...again, that's just a business owner who didnt recongnize just how much trouble his business was in. If it is just a matter of there being no new business and the GC retains the subs money and then subsequently goes out of business (without living in it first), that's not exactly criminal, but it's pretty bad. I would say that if you can first prove the sub was owed the money and that they are not mitigating circumstances (back charges, delays, warranty, etc.) and that the GC perhaps took the work just to "intercept" the cashflow, you have a reasonable case to go after him personally with a criminal charge. That being said, this argument should cut both ways. There are many subs that play the exact same game on GC's where they dont pay the 2nd or 3rd tier subs while financing a lifestyle they otherwise cannot afford. Accountability, one would hope, would encourage better behavior accross the board in the industry.
Posted by: Dennis Kane - Friday, April 18, 2014 10:19 AM
Yes. Non-payment of Subs should be a crime and so should non-payment of Architects!
Posted by: Raymond F. Rola - Friday, April 18, 2014 10:36 AM
I think the terms prime and subs need to apply to the design team as well as the construction contractors. We, as an EOR, have had multiple instances of the prime architect billing on our behalf and then using those funds based on our invoices to either pay their own expenses or other sub-consultants. Many times, they have asked us to sign off on waivers with the promise of payment afterwards that never came. We had one instance where, on a state project, the using agency sent a letter on our behalf to the architect that collecting state funds for our invoices and not paying us, even though payment waivers weren't filed, constituted fraud against the state, and the architect would face sever sanctions if we were not paid our due immediately. Needless to say, we were paid promptly after that email. However, we are loathe to bypass the prime to communicate with the Owner as it generally guarantees the end of the business relationship with the prime. That action is typically the when the relationship is pretty much dead anyway. Back to the point, if it's fraud against the state, it's fraud against a private owner. The legal question is should the fraud be a criminal or civil case. I'll let the lawyers chime in.
Posted by: S Roy - Friday, April 18, 2014 10:49 AM
I believe it should be criminal for this reason. A GC submits a payment application based on the percentage of work a subcontractor has completed. When those funds are not disbursed in the same percentage as billed to the project's owner it is just like going into the subcontractor’s checking account and stealing their money. This is criminal and should be addressed as such by the legal system. This is typical for GC's who do not have the financial strength of their own to operate and depend on subcontractors financing their business. This is a major problem for the construction industry. By putting teeth in the laws that would prevent this behavior would improve the GC and subcontractor businesses by forcing them to have needed financial reserves.
Posted by: Brad Chisler - Friday, April 18, 2014 10:59 AM
Yes it is a good way to protect the subcontractors if payment is not made, as well as payment to the Design engineer who is not paid. Prosecution is complicated across state lines thou.
My Structural Engineering design firm was hired by a design build Architect from Chicago, Illinois to prepare the design to repair a three story exterior walk way which is concrete and steel, for a brick apartment building. The apartment building is located in Milwaukee, WI. However, the apartment building is in Wisconsin and the Architect is licensed and lives in Illinois. He apparently was buying a foreclosure property in Wisconsin for rehabilitation among other construction projects.
The architect agreed to a design and construction procedures that would use temporary shoring construction procedures to replace structural steel and concrete slabs. During construction, the architect instructed the concrete and steel contractors to follow procedure that was less expensive and not according to the specifications. The architect informed this engineer the property owner wanted the repairs made as cheap as possible, so revisions were not argued.
After construction was completed, the Architect collected the payment from the owner for repairs that would have been the cost of repairs with the temporary shoring. The Architect then did not pay the concrete contractor, the steel fabricator, or this engineer. The architect also defrauded the owner by having him pay for and believe that the repairs were a more permanent construction.
The attorney general for Wisconsin and Illinois were contacted in Illinois and Wisconsin to find what prosecution options are possible. The answer was that Wisconsin cannot prosecute a contractor who resides in another state and Illinois cannot prosecute a contractor for construction work in Wisconsin. The architect does not answer any telephone calls from the contractors or this engineer since 2010.
Posted by: Robert Bosko Plechas - Friday, April 18, 2014 11:10 AM
Payment and Performance Bonds at all contractor levels can avoid legal actions and provide redress. Once a bonding company has to pay off that is the end of that contractor getting another bond. Public agencies require prime contractors to provide such bonds so they can remain aloof from these disputes. My opinion, I am not a lawyer.
Posted by: Ronald Vietmeier - Friday, April 18, 2014 12:13 PM
Yes, I agree, this is only the right thing to do. If you go to a restaurant and order food and cannot pay it is "Theft of Service." The work Subs do is no different.
Posted by: Jessica Spotts - Friday, April 18, 2014 12:14 PM
Again, agreeing with Mr. Vietmeier, P & P bonds would go a long way toward solving problems such as these. However, it would seem the organizations engaging in this behavior are those least likely to to have a good relationship with sureties in the first place.
Posted by: C Hampton - Friday, April 18, 2014 12:28 PM
So, if the GC pays the sub and the sub doesn't pay his suppliers or labor, shouldn't that be a crime also? Typically, the GC winds up paying twice under such circumstances.
This is not a one-way street, folks.
....and what Mr. Vietmeier said.
Posted by: B. Polwarth - Monday, April 21, 2014 12:00 PM
Absolutely, Some General Contractors want to keep Subs money as long as possible. Even up to the point of flat out stealing the subs money. Case in point: 2005 we installed HVAC chill water at a local school in which we completed the project since the management company for the district said they would make sure we were funded/ Well we found out that this GC was doing 5 schools for the same district and on every job subs were not being paid.. (50) subs... well we sued and about 6years later we settled out of court for about 50 cents on the dollar which doesn't include the 10's of thousands spent using these worthless attorneys... The GC's know how to play the game - drag out the law suit until the sub either goes out of business or settles for a whole lot less than is owed... Yes the state needs to put teeth into a law which will force these public entities to hold up payments to the GC until subs are paid.
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