Dealing with Non-Payment on a Commercial Job

A shop owner is stiffed by another contractor who he helped out on a commercial contract. Colleagues discuss the available strategies for securing payment. April 24, 2006

A few months ago, we did some work for another shop. They needed parts processed on our router for a large commercial job they were doing. We agreed to do the work and covered the associated costs with them. The guy paid us in full for the first phase of work. After processing the second phase of work ($8k worth), he hee-hawed about paying us. He said he needed 10 days to get the next installment from the GC. Two weeks turned into two months. I kept calling him. I wanted to give him the benefit of a doubt. He said he hadn't been paid by the GC.

After all of the delays, I checked up on the guy. It turns out that he isn't a licensed contractor in VA. He doesn't have a state business license or business licenses for the county in which his shop is located in, nor the county where his office is located. And to top it off, I was talking to one of the guys that worked for him on the project and he said that all of his men were paid by personal check from an account with someone else's name on it and was always under the table. No withholding.

Not a good sign. The guy is still around and still doing business. Any suggestions? The lawyer said we could sue him and get the state involved because it's pretty serious when you are doing $80k contracts in VA without a Class A contractor's license, not to mention not withholding fed taxes, fica, etc. The lawyer also wants to bring the GC that hired the guy into court because it would expose them and their clients for hiring companies that aren't licensed.

I'd appreciate some advice. I'd like to get paid. I'm not sure the GC knew all of this about this guy and if I were to drag them into court over this and cause a lot of bad press for them, it may really screw me up in the business community. I don't need that either.

Forum Responses
(Business and Management Forum)
From contributor B:
You might have your attorney drop him a letter and threaten to sue if he doesn't pay up immediately. Perhaps pointing out to him that working without his paperwork in order could be more expensive than just paying you off. Of course, you don't want to be accused of extortion!

From contributor K:
Did you send a preliminary notice to the homeowners and the GC stating that you were going to be doing work? If so, you can file a mechanic's lien on the home so that you can get paid that way. In California, any subcontractor can file a mechanic's lien against the property as long as they send the preliminary notice to the owner and file it with the county recorder's office. If you don't get paid, they will foreclose on the house to settle payment. However, if you were just doing business with this guy and didn't have any papers stating it was for a specific job, then you will get in trouble for working with an unlicensed contractor just the same as everyone else. I think you may be in a jam on this one. Bottom line is that this clown is the reason there are contracts, notices, liens, licenses, etc.

From contributor S:
In as friendly a way as possible, I would send a certified letter on your lawyer's letterhead asking for the money with a specific deadline date for payment. I would not threaten the lawsuit, unlicensed, etc, route (at first). Keep that as your ace in the hole if you need to take it further. If he does not respond or pay by this date, then send another certified letter stating your intentions to sue and notify the state, etc. with a 10 day deadline. If he still does not pay, then and only then would I file suit.

This guy is a rat. Don't corner him with threats of lawsuits if you don't have to. Just a simple, direct to the point letter asking for your money with copies of all the pertaining paperwork to order.

If you do need to file, I would try not to get the other parties involved. As you stated, word of this will get around. Even though it is not fair to you, you need to keep your reputation in the local building community intact.

You did have a contract and proposal written and signed, right? I hope so for your sake. Now most importantly you have learned a lesson from this instance. Use it to put policies in place that will keep you out of this situation in the future, i.e. contracts, copies of certificates of insurance, resale certificates, business license, etc. Also make sure that in your contracts you are entitled to interest for overdue payments and lawyer's fees for collections so that if you do need to sue for money down the road, you can collect extra to apply to your extra time spent.

While it is fresh in your memory, write down everything you can remember that happened during this time period so if you need to sue, you have a timeline to go by backed up by phone, fax and email records to corroborate your side of the story. (Don't ask why I know to do this.)

Hopefully you can walk away with just spending a few hundred bucks for your lawyer to write up the letters. It may even be in your interest to negotiate a lower payment just to move on. Your heart tells you that you deserve the money (and you do), but the best thing to do for your business and mental health is to get whatever you can as quick as you can and get this behind you. To save some money, you can write the letters and have your lawyer just review and clean them up and put them on his letterhead instead of paying them more to draft the entire thing themselves.

From contributor C:
I don't know if it was mentioned above, but in your case I would enlist the help of the client that this guy was working for. We had good success in the Chicago area with this tactic, because these GC's have a definite interest in making sure everyone gets paid. Since it was a commercial job, there is probably still money owed to this guy from the GC, and they might be willing to withhold it from him until you are paid. This guy thinks you are small potatoes, and thinks he only has to pay bigger fish than himself. He probably fancies himself as quite the tough businessman for stiffing you so easily. Make sure the people he is working for know about this in no uncertain terms. Involving them in this process should boost your reputation in their eyes, and trash his. It may also get you paid. Approach them directly at first, not through a lawyer. Always appear to them as an ally and not a threat.

If the GC is no help, keep going up the ladder. Even if you have to involve a lawyer eventually, at least you will have tried to mitigate this thing on friendly terms, and they will remember this. Any more time spent trying to collect directly from this worthless leach is probably further wasted time. He's patting himself on the back right now for his ingenuity in screwing you over. Next time be more careful in determining the type of person you do business with. Ask around - this is not the first or last time he's done this.

From contributor J:
Go to the GC. If you don't get satisfaction ASAP, then do what your lawyer suggests. I'll bet money the GC is just as much a crook as the sub. A competent, reputable GC wouldn't (knowingly) do business with him. I can't tell you how much documentation about my company that I had to file with GCs with which we performed as a sub.

From contributor M:
Forget it - you are going to pay your lawyer more than he owes you and probably get nothing but frustration. Just learn from your mistakes.

From contributor E:
You need to make it clear to him that it will be much cheaper to pay you than to not pay you. Forget the lawyer or letters for now. Get in front of the guy personally and tell him if he doesn't pay within one week you will a) sue him and b) place a mechanic's lien on the property (check VA laws on how/if you can do this). Make it clear to him that in the process of suing him it will come out that his business isn't registered and he doesn't pay payroll taxes. You need him to understand that if he doesn't pay you, you will sue him and his business may not survive the process. Don't threaten this but just point it out as the simple set of facts that it is. If you can get him to understand the big picture ramifications of a lawsuit he will realize it's much cheaper to pay up than risk losing his business.

From contributor D:
On any large job (over 70k) a class A license is required in VA. The GC that hired this deadbeat is liable as well. Give the GC a call in a non-threatening way and introduce them to the facts, see what kind of response you get. If it is nasty or negative, time to go the legal route. You can also file a complaint with the VA license board (free to you!) and let them deal with an illegal idiot. It won't get you paid, but it will get him off of the street. Also, most lawyers will write a quick letter of collection for a modest fee. It can be surprising what their letterhead can do.