Contractors, subcontractors and suppliers servicing the New York construction industry have the right under the law to ensure they receive payment for the services that they provide. Most contractors and suppliers will execute written contracts with clients to help protect their rights.
When compared with contractors or subcontractors, suppliers are somewhat limited in their options for collecting on unpaid debts, particularly suppliers of suppliers. If you do not supply directly to a contractor or to the company funding the project, the degree of separation between the supplies you provide and the final construction project limits your rights when you don’t receive full pay.
Typically, those who supply a supply company cannot seek a mechanic’s lien against a private property if they don’t receive payment in full. Mechanic’s liens are often not an option for anyone involved in a public project. However, they do have the right to make a claim against the payment bond, which may be the only viable option when the company that you supplied with materials does not fully pay you.
How do payment bonds work?
Payment bonds involve working with a third party to ensure payment of all expenses related to a construction project so there will not be a lien against it upon completion. They are optional in private construction projects but typically mandatory on public projects because unpaid contributors can’t seek a lien against a public property.
Typically, the company or authority hiring out for certain services has to secure a bond in the full amount of what they intend to spend on supplies and often labor as well. The bond paid against services is a performance bond.
The point of the bond system is to ensure that there are funds available for goods and services provided while also protecting the entity paying for the project from losing out on capital. Paying suppliers or contractors the entire price of the project up front could results in losses, while those providing labor and supplies are always at risk of going unpaid.
You can aggressively pursue your right to payments
Just because you can’t get a mechanic’s lien against the property doesn’t mean you have no options if you haven’t received payment in full for the supplies you provided. You may need to take action to seek payment, ideally as soon as the other party defaults on arrangements to pay.
Making a claim against the payment bond is one such action. Drafting sound contracts and knowing your rights regarding debt collection when you work with private and public projects will help ensure you receive full payment as you should.