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Construction Issues for Subcontractors where Contractor Has Not Received Funds From The Owner

It seems that a common statement from general contractors to subcontractors is that they don’t have the money to pay their subs until they receive funds from the owner. Many construction contracts have similar provisions. In North Carolina, these provisions are not necessarily enforceable against the subcontractor.

Most construction contracts have provisions indicating that the contractor must receive payment from the owner in order for the contractor to have to make payments to the subcontractor. In North Carolina, such clauses in contracts are unenforceable. Subcontractors must still be paid pursuant to the North Carolina Prompt Pay Act within 7 days of the completion of work or the production of materials. If payment is not made, subcontractors can claim an additional 1% in interest per month until they are paid.

Contractors, please note that this does not apply to money being withheld for performance issues such as unsatisfactory job progress, defective construction, and other performance based issues. This portion of the North Carolina Prompt Pay Act applies only to commercial jobs. Contractors on jobs used for residences are specifically excluded from this provision.

Subcontractors –whether commercial or residential – also please note that if the contractor merely says that he doesn’t have the funds from the owner, consider serving a notice of lien upon funds on the owner. As this blog has noted previously, a notice of lien upon funds can be served at any time whether the job is complete or not to ensure that the subcontractor is paid BEFORE the contractor.

If you are a general contractor, subcontractor, or an owner who has received a notice of lien upon funds, contact Maginnis Law, PLLC to speak with a construction lawyer with experience with construction litigation issues. Maginnis Law, PLLC is a Raleigh civil litigation firm that also takes cases in Cary, Clayton, Wake Forest, Morrisville and the rest of the Triangle area. Please contact the firm at 919.526.0450 to speak with a construction attorney or visit our website at