The simple answer is “Of course not!”. But are you taking any precautions to make sure that it doesn’t happen to you?
How can this happen?
We’ve all heard the stories of a subcontractor that failed to pay its laborers prevailing wages on a Davis Bacon project. Typically, the Department of Labor catches this failure to properly pay employees in an audit of the project. If the subcontractor doesn’t have the financial resources to pay its employees, the Department of Labor may look upstream and demand that the upstream contractor makeup the difference.
On private projects, a subcontractor’s employees could even file a lien on the property if they are not paid. This, of course, would create some issues for the owner and upstream contractors as they discuss who is going to pay the unpaid subcontractor’s employees.
How can you avoid this?
The best way to avoid this problem is to actively monitor the pay practices of your subcontractors. Lien waivers that indicate that all employees have been paid is a good place to start. But, if a subcontractor is willing to underpay its employees, I don’t think they’ll have any problem falsifying a lien waiver. So, maybe ask for copies of pay stubs showing that employees have actually been paid and paid the proper hourly wage or overtime. Of course, you’ll need contract language up front that will allow you to demand this documentation.
Another way to avoid this problem is to do work with reputable subcontractors. This may mean working with a subcontractor who is not the lowest bid.
Take Away: Contractors can be held liable for a subcontractor’s failure to properly pay its employees. Knowing who you are doing business with and incorporating contract language that allows you to monitor your subcontractor’s pay practices are two good steps to avoid paying your subcontractor’s employees. As always, we recommend that you hire an experienced construction attorney to assist with your construction contracts and minimizing your risk.
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