3- Using the Stop Work Option
How valuable is the right to stop work? For smaller contracts, probably not very. If you are not being paid, and if you have a good relationship with the Owner, because it’s a small contract and you are likely dealing directly with the Owner, then you will know when the Owner is having financial difficulty. If that is the case, you can probably work out some agreement to suspend the work rather than going through the effort of the Stop Work notification.
The more likely situation is on larger projects when the Owner stops making progress payments. On those types of projects, the Owner will always have some stated reason, however frivolous it may be, for not paying you. In that case, you cannot satisfy the key statutory element for stopping work; there’s no dispute over the entitlement to payment.
The stop work option is not something that should be done on impulse and without consultation with legal counsel. If it is done correctly, it can be effective. After all, if you are not being paid, you are financing the project for the Owner. If the Owner goes bust and there is no payment bond, you may be getting pennies on the dollar, if anything at all, and getting it long after you performed the work. Better to call the Owner’s bluff.
Conversely, from the Owner’s perspective, if you do not satisfy all the requirements in the statute, or if you don’t do the steps correctly, you may be in material breach if you pull off the project. The ball will then be in the Owner’s court and you will have an even bigger problem getting paid, if you get paid at all.
2- How It Works
If you have not been paid within 35 days after submitting your progress payment, and if there are no disputes with the Owner that would allow the progress payment to be withheld, the statute allows you to inform the Owner that if you are not paid within 10 days, you will stop work. After you have given 10 days written notice to the Owner, and all lenders and subs, you also need to post a further notice in a conspicuous place on the construction site 5 days ahead of the time that you will be stopping work.
In order to avail yourself of the stop work provision in the Code, there cannot be any dispute that the payment is due and owing. Typically the Owner will have some reason for not paying you, but assuming it is simply a cash flow issue that the Owner has and not a problem with your work, this stop work remedy is available. Plainly this factual prerequisite is going to be difficult to satisfy in most circumstances.
If you properly send the notice, and then properly post the notice on site, and if there is no dispute that you are owed the funds, you can stop work after the 10-day period. If you exercise this right, and do it properly, you have no liability for delays that the stop work may have caused. There is also a right to an expedited court hearing to determine whether you should be paid.
If the Owner pays you, or the situation is otherwise resolved, you need to provide notice that you will be returning to work. This notice is provided to the Owner, lender, and subs; all the folks that you informed in the first place that you would be stopping work on the project. The notice of your return to work and the cancellation or resolution of the dispute must be posted in a conspicuous place on the project.
1- The Stop Work Statute
Stopping work on a project can be dangerous. For one thing, it gives the other party to the contract a terrific defense to any claim that you may make. Any time work is stopped by one party, there will be the contention that it is unjustified, and therefore is a material breach of the contract that entitles the other side to suspend its own performance, demand your performance, or declare the contract breached and immediately sue for damages.
However, for private contract work, the Legislature has crafted a right that allows the contractor to stop work under certain circumstances. The right to stop work is actually a lot of work in and of itself, and it involves a fairly precise series of steps that need to be completed in the proper sequence or you may inadvertently find yourself in a breach situation, the very situation that you wanted to avoid by taking the proper steps to stop work.
The next series of blogs will tell you how the statute works and what you need to do to make it work for you.