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Can a supplier file against the GC's bond for slow pay?

We are a small company who lost the major job supporting our operation. We were slow pay to our supplier and they filed a lien against a job that was subcontracted to us. We have been making payments to the supplier every Friday as agreed. The job is not at substantial completion, located in Iowa, owned by the state of Iowa. We have a second job in NE with a lien as well. That job is complete. Both projects are holding our funds until the liens are removed, we can't pay without the funds. We are willing for the funds to go directly to the supplier but can't seem to make that happen. Any information is GREATLY appreciated.

1 reply

Mar 3, 2020

Slow payment runs rampant in construction, and that reduced cash flow can hurt a business in a number of ways - including a situation like the one you described above. Luckily, there are some tools that can help to speed up payment. Let's look at some tools that can help a subcontractor speed up payment. Then, we'll look at some potential options for getting a sub's supplier paid, too.

Tools for fighting slow payment

Let's start with some less-adversarial options, then move to more aggressive options.

Invoice reminders

Sometimes, simple invoice reminders will work to force payment. Invoice reminders are just like they sound - they're reminders that payment is outstanding and must be paid. And, sending them regularly can keep the debt fresh in the customer's mind, prodding them to pay what's owed.

Demand letters

Taking things a step further may help, too. A formal, strong payment demand letter can be a powerful recovery option. Generally, it will include specific legal threats and put a deadline for when payment must be made. And, by showing the customer you're serious about getting paid, they may be less inclined to let a debt linger.

Notice of Intent to Lien

Another option may be to threaten a mechanics lien filing, yourself. Sending a Notice of Intent to Lien lets recipients know you're willing to do whatever it takes to make sure that payment is made. And, when a customer is refusing to pay for material or services provided, lien rights will usually be on the table.

Pursuing a mechanics lien filing

As mentioned above, mechanics lien rights will generally be available in situations where work has been provided but payment has not been made. And, if push comes to shove, a mechanics lien filing can go a long way to force payment. For more information on Iowa mechanics lien rights: (1) Iowa Mechanics Lien Guide and FAQs; and (2) Mechanics Lien Iowa: How to File an IA Mechanics Lien. For more on Nebraska's lien rules: (1) Nebraska Mechanics Lien Guide and FAQs; and (2) How to File a Mechanics Lien in Nebraska – Step by Step Walkthrough.

Legal claims

Finally, legal claims could be on the table, too. If payment isn't being made in line with the contract, it's possible that a breach of contract claim could be on the table. Additionally, at least for work being done in Nebraska, the state's prompt payment laws require timely payment - and there could be a claim under the Nebraska prompt payment laws, too. Of course, before deciding to proceed with Legal claims, it'd be wise to consult a local Iowa attorney or Nebraska attorney. They'll be able to review your project documents then advise on how best to move forward.

How to get a supplier paid so they can release their lien

One option that could work for getting a supplier paid may be to agree to the use of joint checks. That way, your customer and other higher-ups can be confident the money will be used as intended. Additionally, having the supplier issue a conditional mechanics lien waiver for the amount owed could provide a showing of good faith. While not a lien release, a conditional waiver coupled with proof that payment was made would likely go a long way toward getting a lien removed. So, the customer may be comfortable with pursuing that option, then having the lien claimant release their lien afterward. Finally, it's likely possible to draw up an agreement where the customer can make direct payment to the lien claimant, then pay the balance of what's owed thereafter. Of course, it'd be wise to consult an attorney to draw up that agreement considering the implications - no sub would want to have their customer pay their supplier then go unpaid, themselves.

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