Article - Content Copyright Rinke Noonan

SUBCONTRACTOR BILL OF RIGHTS

A few years ago, with BAM's assistance, the State Legislature enacted a law to protect subcontractors from difficult builders. Minnesota Statutes Section 337.10 gives subcontractors certain rights in both Residential and Commercial Contracts.

First, it is unlawful for a general contractor to put a provision in a contract stating that the laws or rules of another state will apply to the construction. This is most often a problem with large commercial projects, where an out-of-state contractor comes to Minnesota. The Subcontractor Agreements often state that any dispute will be handled by the laws of Alabama, for example, if that is the contractor's home state. Those provisions are void and unenforceable.

The second, and perhaps most important right, is that no subcontractor may be required to waive their Mechanic's Lien rights or a Payment Bond claim prior to actually being paid. Some general contractors require a complete waiver of all Mechanic's Lien rights in Subcontractor Agreements before any payment is made to the subcontractor. Those provisions are not valid.

Now and again I run into this question when a subcontractor is required to provide a Mechanic's Lien Waiver prior to receiving payment. My advice is to write on the Lien Waiver: "I have not been paid." This means that anyone looking at the Lien Waiver is on notice that the Lien Waiver may not be valid.

You need to be careful in signing Lien Waivers because this law does not apply to someone other than the general contractor, if that person, such as a title company or bank, is given a Lien Waiver with no restrictions. That person may assume you have been paid, and you will lose your lien rights.

In order to protect your right to payment, I recommend that all subcontractors and suppliers put the following on every Lien Waiver they sign:

"IF PAYMENT HAS BEEN OR IS TO BE MADE BY CHECK, THIS RECEIPT AND LIEN WAIVER IS NOT VALID UNTIL THE CHECK HAS CLEARED ALL BANKS."

Third, on commercial work, but not residential, the general contractor is required to make payment within 10 days of receipt of payment by the owner for the work. In other words, 10 days after the general contractor gets paid by the owner, the general contractor must pay all undisputed claims of subcontractors and suppliers. Failure to make timely payment can make the general contractor liable for interest of 1 1/2% per month and attorney fees and costs, if the subcontractor has to sue the general contractor.

Finally, and again this does not apply to residential construction, in commercial work the general contractor must make monthly progress payments, unless the Subcontract states that monthly progress payments will not be made to the subcontractor.

David J. Meyers is licensed to practice law in the State and Federal Courts in Minnesota and Wisconsin. He is a former BAM President.