All work and no pay making you crazy? A temporary suspension of work may be an appropriate self-help remedy for an owner’s or contractor’s non-payment. Although termination of the contract for the material breach of non-payment by the owner or contractor may be warranted in certain circumstances, suspension may be more appropriate if the reasons for non-payment can be cured and the parties can, following suspension, payment and resumption of work, achieve the goals and realize the mutual benefits of the completed contract or subcontract.

Suspension of work may involve pulling crews off the site, and, for longer suspension periods, actually demobilizing from the work site. Suspension is an actual stoppage of work, albeit a temporary one. This is different from reducing crew sizes or otherwise a slower pacing of the work.

To be clear, although suspension of work is not as severe an action as termination of the contract or subcontract, the consequences can be significant. Before suspending work, or even threatening to suspend work, the contractor or subcontractor should review and understand the applicable contract provisions and law affecting such action, communicate with the owner or contractor as applicable and document the reasons for the suspension in advance, and seek out experienced and knowledgeable construction counsel to evaluate whether the benefits of suspension outweigh the risks. This article expands on each of these tips.

Know Your Contractual Rights

Some, but not all, contracts and subcontracts provide that the contractor or subcontractor has the right to suspend work for non-payment. For example, ConsensusDocs Form 200, Agreement and General Conditions Between Owner and Constructor (Lump Sum) (© 2011, Revised 2014), provides that if for any reason not the fault of the constructor, the constructor does not receive a progress payment from the owner within seven days after such payment is due, then the constructor, upon giving seven days’ written notice to the owner, and without prejudice to and in addition to any other legal remedies, may stop Work until payment of the full amount owing to the constructor has been received, including interest for late payment. The contract price and contract time shall be equitably adjusted by a change order for reasonable cost and delay resulting from shutdown, delay and start-up (§ 9.5). Similarly, ConsensusDocs Form 750, Standard Agreement Between Constructor and Subcontractor (© 2011, Revised 2014), provides that if the constructor has received payment from the owner and does not make payment to the subcontractor for any reason not the fault of the subcontractor, or if the constructor has failed to pay the subcontractor within a reasonable time for the subcontract work satisfactorily performed, the subcontractor may, upon giving seven days’ written notice to the constructor, stop work until payment of the full amount owning to the subcontractor has been received (§ 8.2.6). Form 750 further provides that the subcontract amount and time shall be adjusted by the amount of the subcontractor’s reasonable and verified cost of shutdown, delay and startup (§ 8.2.6).

The foregoing and similar language grants powerful rights to contractors and subcontractors to suspend work for non-payment. However, without such language, a contractor or subcontractor who stops work for non-payment may be at grave risk of breaching its contract or subcontract, unless the applicable law allows the contractor or subcontractor to do so.

Know Your Statutory Rights

Many jurisdictions have enacted prompt pay laws for public works and/or private construction projects. Contractors and subcontractors should familiarize themselves with the applicable laws in the states in which they perform work, as well as the laws made applicable by virtue of subcontract choice-of-law clauses. For example, in Arizona, for private construction projects, A.R.S. § 32-1129.04 provides that a contractor may suspend performance if the owner fails to pay the contractor, and a subcontractor may suspend performance if the owner fails to pay the contractor and the contractor fails to pay the subcontractor, or if the owner pays the contractor for the subcontractor’s work but the contractor fails to pay the subcontractor for the subcontractor’s work (the statute does not authorize suspension if the owner timely and properly objects to payment for the contractor’s or subcontractor’s work). The statute further provides that a contractor or subcontractor shall not be deemed in breach of the contract or subcontract for suspending performance pursuant to the statute, and that a contractor or subcontractor that suspends performance is not required to resume until it is paid the amount approved, together with any costs incurred for mobilization resulting from the suspension.

Communicate and Document

A contractor or subcontractor that has not received timely payment for its work should promptly investigate the reasons for non-payment. Timely communication is the key. Also, in some instances, the squeaky wheel gets the grease. Whatever the reasons and whatever the communications, it is important to contemporaneously document the circumstances, project status and communications. Write to the owner or contractor to recite what work was performed, what billings were submitted, what payments were due, what reasons, if any, were given for nonpayment and what needs to be done to address the situation. If suspension is anticipated, document the status of the contractor’s or subcontractor’s work as well as the other ongoing (or suspended) work, the anticipated schedule for the contractor’s or subcontractor’s work if not suspended, the anticipated suspension period (if known), the costs of demobilization and remobilization and other costs related to the suspension that may be sought in addition to the regular payments owed. The more information the subcontractor, contractor and, if appropriate, the owner have regarding the reasons for, and the anticipated effects of, the suspension, the more informed decisions each affected party can make as to whether suspension is an appropriate action in response to non-payment.

Get a Second Opinion Before You Suspend Work

Contractors or subcontractors who believe they have the right to suspend work and that a suspension is the best course of action should … take a deep breath and contact knowledgeable and experienced construction counsel before taking that action. Counsel can quickly review the facts, analyze the applicable contract and/or statutory language, and evaluate the pros and cons of suspending work compared to other action or no action. Even though suspension is different from, and less final than, termination, suspension can still prompt an aggressive and adverse response from the owner and/or contractor, and should be used sparingly.