It is not uncommon for New York contractors to delegate specialized work to subcontractors with one or two areas of expertise. Subcontractors may focus on specific aspects of a project, such as drywall, electrical, plumbing and flooring. If you regularly sub out labor, you know how much rides on your subcontractors’ ability to perform timely and accurate work. Failure for a sub to perform work as agreed upon by the contract could cost you substantial time and money. When this happens, you may wonder if you can withhold payments. According to Chron Small Business, the answer depends on a few different factors.
Though state laws vary, most allow contractors to withhold payments in very limited circumstances. If you plan to withhold payments from a subcontractor, you must make sure that your decision to do so is legal and legitimate; otherwise, you may face substantial civil and financial repercussions. You should also make sure that you have a written contract that details the scope of work on which you and the subcontractor agreed. Without a contract, you have no way to prove the legitimacy of the withholdings.
One legitimate reason for withholding payments to a sub is a substandard quality of work. If you use this reason, you must pay the contractor for the work performed up until this point. You do not have to pay the company for the rest of the job. However, this rule only applies if the substandard work was the contractor’s fault. If delays due to your own or another subcontractor’s work resulted in the low-quality results and you withhold payment, the subcontractor can sue you for the original amount of the contract.
Delays can cost you and other subcontractors both time and money. If a subcontractor does not complete the agreed-upon scope of work within the specified time frame, you may be able to implement time penalties. However, you must make sure that your contract contains a provision that informs the subcontractor of the sanctions.
You should not use this article as legal advice. It is for educational purposes only.