Getting paid for work performed on a construction project is obviously one of the most important issues for all parties involved in each project. As such, before signing a contract one must review and evaluate the contract. Pay close attention to provisions relating to progress and final payments, retention, withholding payments for defective work, delays, liens or payment bond claims, suspension of work, and termination of the contract. All of those provisions can, in one way or another, affect when and how much you may be paid under your contract. No less important is the question of the financial ability of the party with whom you are contracting to actually make payment in a timely manner as the work progresses. Contractors should make an appropriate inquiry into the financial worth of the owner/developer and the provisions for the financing of the project. The financial responsibility of the owner/developer and the general contractor are also important questions for subcontractors and suppliers to consider before entering into contracts.

The challenge in the construction industry is to be paid for your work as it is performed. Delays in receiving payment erode profitability and it can mean disaster if the unpaid amount is large and the delay is long. If you have not been paid for providing work or materials on a construction job, you may have the right to suspend your performance on the job. Your right to suspend your performance may be specifically set forth in your contract; if not, your right to stop work will be determined under general contract law principles. Review your contract carefully to see if it addresses your rights upon nonpayment.

One typical example of contract language allowing an unpaid contractor to suspend performance for nonpayment is found in AIA Document A201-1997. In pertinent part, the AIA document provides:

9.7.1 If the Architect does not issue a Certificate for Payment, through no fault of the Contractor, within seven days after receipt of the Contractor's Application for Payment, or if the Owner does not pay the Contractor within seven days after the date established in the Contract Documents the amount certified by the Architect or awarded by arbitration, then the Contractor may, upon seven additional days' written notice to the Owner and Architect, stop the Work until payment of the amount owing has been received. The Contract Time shall be extended appropriately and the Contract Sum shall be increased by the amount of the Contractor's reasonable costs of shut-down, delay and start-up, plus interest as provided for in the Contract Documents. AIA Document A201 (1997), ¦ 9.7.1.

A provision like the above is helpful to the contractor or subcontractor because it eliminates an element of uncertainty regarding the consequences of nonpayment. The provision specifically grants the contractor the right to stop work, and gives the owner a reasonable period of time (7 days) within which to cure its nonpayment before the contractor may suspend its performance due to nonpayment. AIA Document A401-1997, "Contractor-Subcontractor Agreement Form," contains a very similar provision in paragraph 4.7.1 for use in the contractor-subcontractor context.

Most construction contracts permit withholding all or a portion of progress payments for specific reasons such as uncorrected defective work, delays in performance and other causes. An example of this provision is in section 9.5.1 of AIA Document A201-1997. Similarly, subcontract agreements typically permit a general contractor to withhold payments from subcontractors to the extent any payment is withheld by the owner for reasons attributable to that subcontractor.

Whether or not a legitimate cause exists for withholding a payment is often a matter of serious dispute between the parties. In the face of such a dispute, refusing to perform further work under the contract as a means for enforcing payment can be risky. If cause exists for withholding a payment, then a refusal to continue performance may be a material breach of the contract.

Care should also be taken not to confuse a "stop work" provision with a "termination" provision. Many contracts contain both and they are intended to address different situations. A "stop work" provision typically allows the contractor to temporarily suspend performance due to nonpayment, but requires the contractor to return to work after payment, if made within a reasonable period. A "termination" provision, on the other hand, allows the contractor to permanently refuse further performance upon the occurrence of stated events. One such stated event may be nonpayment, but a nonpayment giving rise to a right to terminate is usually more serious and longer-lasting than a nonpayment giving rise to a right to temporarily stop work.

If a contractor is going to temporarily cease working on the project because of delayed payment, it is important that in conversations with the owner, or in notice given to the owner, the contractor makes it clear that the contractor is suspending work temporarily rather than terminating the contract. Furthermore, it should be made clear that the contractor will return to work if paid within a reasonable time. An owner who is unable to make payment to a contractor may attempt to characterize the contractor's action as an improper termination of the contract. By doing so, the owner creates an argument that the contractor has breached the contract.

If the contract or subcontract does not specifically allow the contractor to stop work upon nonpayment, the contractor's right to suspend performance is governed by general contract law principles. In any event, it is important for contractors to read and understand the provisions in their contract. An experienced construction attorney can answer any questions about the contractor's rights.

Arnold L. Wagner is a partner of Meuleman Mollerup LLP, focusing his practice in the areas of complex commercial litigation and construction law. Mr. Wagner can be reached at 208.342.6066 or This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ; more information at www.lawidaho.com.