The Stop Notice Option- Private Works
Let’s assume you are a subcontractor on a private work project and the General will not pay you for the work that you have performed. You’ve been patient but the check is not coming and the dollars are getting significant. What are your options?
First you can stop work but that is a bit of a risk. If there is a good reason why the General is not paying you, and you walk off the job, then you might just have breached the contract. If you refuse to come back and finish the work, the General might hire someone else to finish the work and use the money left on your contract to pay that replacement sub. If the replacement sub costs more than you do, so that the funds left on your contract are not sufficient to complete the work, then the General might have a claim against you for the difference and of course the money that you were owed might become unavailable too. Bad things happen if you are in material breach of contract, and if you walk off the project without a really good reason, you just might be in material breach. Be very careful if you choose this course of action.
The other and more attractive option is to serve a Stop Notice on the Owner or the Lender, or both. In private works, the Stop Notice needs to be bonded in order for it to be effective at all. A bonded Stop Notice is one that is provided with a surety guarantee from your bonding company. If you don’t have a bonding company, call your insurance agent. He or she will know what to do.
If you don’t bond the Stop Notice, then the lender or the Owner can pretty much ignore it and pay out the funds to the General. Depending on the circumstances, this may or may not happen, but why take the chance? If you bond your Stop Notice and the Owner or Lender disregards it and pays out funds that should have been preserved, they are on the hook for the money. In order to fully secure your right to recover on a private work project, bond your Stop Notice.
Keep in mind here that your Stop Notice binds only the funds that are available at the time the Stop Notice is served. If you serve the Stop Notice at the end of the project, there may not be enough money left to pay your entire bill. Of course if there are other subs with Stop Notices, and there is not enough money left to cover all of them, then you get a pro rata share of the amount left regardless of when you serve it.
On private works projects, a General cannot serve the Owner with a Stop Notice; but why would they? However, if there is a Lender involved on the project, a General can, and should, serve a Stop Notice on the Lender. Make sure the lender holds the funds and does not release them to the Owner.
Whether you are the General or a subcontractor, you can serve your Stop Notice at any time, provided there is a basis for it, so if you are not being paid, serve the Stop Notice and make sure it is bonded.
Next up: Stop Notices on Public Works Projects