A recurring question for construction contractors is whether they can stop work if they have not been paid on time. Contractors need to be very careful about suspending performance due to non-payment. If contractors strictly follow the rules, and the terms of the contract, they can protect their rights. However, if contractors stop work prematurely without providing proper notice, or otherwise fail to comply with any applicable laws, they can expose themselves to liability for breach of contract.
When determining whether you have the right to stop work, the first place to look should be the terms of the contract. In many instances, the contract may be the only applicable law.
General Contractor Agreements based on form AIA A201 should include Paragraph 9.7, which provides the following:
[I]f the Owner does not pay the Contractor within seven days after the date established in the Contract Documents … then the Contractor may, upon seven days’ written notice to the Owner and Architect, stop the work until payment of the amount owing has been received.
Subcontractor Agreements based on form AIA A401 should also include Paragraph 4.7, which states as follows:
If the Contractor does not pay the Subcontractor through no fault of the Subcontractor, within seven days of the time payment should be made as provided in this Agreement, the Subcontractor may … upon seven days written notice to the Contractor, stop the Work of this Subcontract until payment of the amount owing has been received.
Even if the construction contract is based on an AIA model, it is quite common for parties to modify the terms of Paragraphs 9.7 and 4.7. For example, the notice requirements might be adjusted; the drafting party might tack on additional requirements, or they may remove the provisions altogether. Every contract needs to be analyzed on a case-by-case basis.
The Connecticut Statutes
Section 42 of the Connecticut General Statutes (“CGS”) requires prompt payment to construction contractors. Specifically, upon receipt of an invoice from a prime contractor, an owner must tender payment within 30 days. Likewise, the general contractor must pay its subcontractors within 30 days of being paid by the owner, subcontractors must pay their sub-subcontractors within 30 days of being paid by the prime contractor, and so forth down the line. A different section of the CGS, § 4(a)-71, requires the State of Connecticut and its subdivisions to make timely payments to contractors within 45 days of their receipt of the invoices.
We must caution, however, that although CGS sets forth timelines for payment, it does not grant construction contractors a right to stop work. Rather, CGS only grants unpaid contractors a statutory right to pursue claims against the non-paying party. Accordingly, unpaid contractors will only have a right to suspend performance if that right is contained in their respective contracts, whether based on forms AIA A201, A401, or otherwise. If that right is not in the contract, it does not exist.
It is crucial that contractors fully understand their contracts. A well-written contract may protect your rights, while a poorly-written contract might be unenforceable—or worse. While many contracts will refer to the AIA language, parties can always agree in writing to different standards for prompt payment, and different procedures for the unpaid contractor to stop work. In that regard, always make sure to consult with an attorney before stopping work because of non-payment, or for any other reason. Even if you have a contractual right to suspend, it is absolutely imperative to give proper notice and take proper steps before doing so. If you do it the right way, you can be in the clear. If you do it the wrong way, you can be found to be in breach of contract and potentially liable for damages.