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Subcontractors Can Sue the Owner of a Construction Project in Virginia in Limited Circumstances

August 22, 2018

Owners typically control the money on a construction project.  Subcontractors do not have a contract with the owner and therefore have limited rights against the owner.  When something goes wrong with the general contractor, if the owner has not paid the general contractor, there are some avenues for a subcontractor to assert a claim directly against the project owner.

A subcontractor’s best remedy against a project owner is to file a mechanic’s lien.  Subcontractors must be careful or their lien rights will expire.  A Virginia mechanic’s lien must be filed 90 days from the last day of the month that a contractor performs work or 90 days from project completion, whichever is shorter.  For example, if a subcontractor last worked on May 17, and the project was not complete the last day that the subcontractor could file its lien would be on August 29.  The mechanics lien can only claim amounts that immediately preceded the last day of work by 150 days or less.  So if the last day of work was May 17, the mechanic’s lien can claim for work performed from that last day back to December 18 of the prior year.   If a single dollar is included in the mechanic’s lien work performed outside of the 150 days, the entire mechanic’s lien will be invalid.  A subcontractor should also be aware that payment by the owner to the general contractor is a defense to the mechanic’s lien.            

In limited circumstances, a subcontractor can make a claim against the owner based on an implied at law contract.  An implied at law contract is often referred to as a quasi-contract, quantum meruit or unjust enrichment.  The court will find that there was an implied at law contract if the subcontractor can prove the following three elements: (1) a benefit was conferred upon the owner by the subcontractor; (2) the owner had an appreciation or knowledge of the benefit supplied by the subcontractor, and (3) an acceptance or retention of the benefit by the owner in circumstances would make it inequitable for the owner to retain the benefit without paying for its value to the subcontractor.  To determine the third element, the court considers two factors: whether the owner paid the general contractor and if there were other circumstance leading the subcontractor to believe that it would be paid by the owner.  Whether payment has been made is an easy factor to determine.

The second factor, whether there were an assurances from the owner that it would pay the subcontractor is more complicated.  A joint check agreement is a clear example where the owner has made an independent promise to pay the subcontractor.  A joint check agreement is typically entered into when a general contractor is having trouble paying its subcontractors.  The joint check agreement states that the owner will include two payees on a check, the general contractor and the subcontractor.  The general contractor can then sign the check over to the subcontractor, insuring that the subcontractor is paid.  A joint check agreement is clearly an indication that the owner will make sure the subcontractor is paid.  In another case, the court held that the mere flow down of a requirement for Sherwin Williams paint was sufficient to indicate that payment should be made to the supplier.  If a subcontractor has a joint check agreement or is merely promised payment by the owner it may assert a claim based on a contract implied at law against the owner.

There are limitations on a subcontractor’s ability to assert a claim against a project owner.  Nevertheless, if the owner has not paid the general contractor, a diligent subcontractor can assert claims directly against the owner.

Jesse Gordon is a Pender & Coward attorney focusing his practice on construction law and government contracts. 

Filed Under: Blog Category 1