Subcontractor payment rights come from several overlapping sources: the subcontract itself, state and federal prompt-payment statutes, mechanic’s lien laws on private projects, payment bonds on public projects, and construction trust fund statutes in roughly 19 states. Each remedy has strict notice and filing deadlines, and missing any one of them can wipe out the right to collect no matter how clearly you are owed the money. The practical work is knowing which tool fits your project, preserving it with the right paperwork from day one, and acting inside the statutory windows.
Read Your Payment Clause First
Two contract clauses control when your right to payment ripens, and the difference between them is enormous.
A pay-when-paid clause is a timing mechanism. It says you get paid shortly after the owner pays the general contractor. If the owner is slow or defaults, the general contractor still owes you after a reasonable period. Courts have treated these clauses as setting a schedule, not creating a condition that could eliminate the debt.
A pay-if-paid clause is far more dangerous. It makes the owner’s payment a condition that must be satisfied before you have any right to collect. If the owner goes bankrupt and never pays the general contractor, you may be left with nothing from the contract itself. Courts generally enforce these clauses only when the language is unmistakably clear, and ambiguous drafting gets read as pay-when-paid. A growing number of states have banned pay-if-paid provisions entirely on the view that shifting the owner’s credit risk to subcontractors violates public policy.
If you see the words “condition precedent” tied to the owner’s payment, you are looking at a pay-if-paid clause. In states that allow them, your fallback when the owner defaults may be a mechanic’s lien or bond claim rather than a contract claim against the general contractor. Read every payment clause before you sign.
When Payment Is Legally Due
On federal construction projects, the Prompt Payment Act requires every prime contract to include a clause obligating the general contractor to pay subcontractors within seven days of receiving payment from the government agency.1Office of the Law Revision Counsel. 31 U.S.C. Chapter 39 – Prompt Payment When the deadline is missed, the general contractor owes interest at a rate set by the Secretary of the Treasury and published in the Federal Register.2Federal Register. Prompt Payment Interest Rate; Contract Disputes Act
Most states have their own versions for private construction, sometimes called “Little Prompt Payment Acts.” These laws generally require the general contractor to pay subcontractors within a set number of days after receiving funds from the owner. Timelines and penalties vary, but late-payment interest charges of 1% or more per month are common. Where the statute applies, the penalty runs automatically, whether or not your contract mentions it.
Retainage
Retainage is the percentage of each progress payment the general contractor withholds until the project is finished. On most projects, retainage runs between 5% and 10% of the invoiced amount. On federal projects, the Federal Acquisition Regulation caps retainage at 10% and requires prompt release once all contract requirements are met.3Acquisition.GOV. Progress Payments Under Construction Contracts Many states impose similar caps on private work, with the majority at 5% or 10%.
Release is supposed to happen at “substantial completion,” the point at which the building is usable for its intended purpose even if punch-list items remain. In practice, disputes over what counts as substantial completion are common, and retainage sometimes sits for months after a subcontractor’s scope is finished because other trades are still working. Some states set specific deadlines for releasing retainage to subcontractors once the general contractor receives it from the owner, but the timelines vary widely.
Two things to check in your subcontract: whether retainage release is tied to your scope’s completion or the entire project’s completion, and whether a pay-if-paid clause could block release if the owner has not paid. On a large job where retainage accumulates for a year or more, 5% to 10% of every invoice is significant working capital sitting in someone else’s account.
Mechanic’s Liens on Private Projects
When a private owner or general contractor fails to pay, a mechanic’s lien is your most powerful collection tool. Filing a lien creates a legal claim against the property itself. It clouds the title, which means the owner cannot easily sell or refinance until the debt is resolved. The leverage bypasses the general contractor and puts you directly against the asset your work improved.
If payment still does not come, you can file a lawsuit to foreclose on the lien and force a sale of the property to satisfy the debt. That is an extreme step, and the threat alone is usually enough to bring the owner or general contractor to the table. The deadline to file a foreclosure lawsuit after recording the lien varies by state, typically six months to two years.
Mechanic’s lien rights exist in every state, but the rules differ significantly on notice requirements, filing deadlines, and who qualifies. In most states, you have somewhere between 60 days and several months after your last day of work to record the lien. Miss that window and the right is gone permanently, no matter how valid the underlying debt.
One limitation to flag: mechanic’s liens are unavailable on public projects, because government property cannot be seized by private parties. Payment bonds fill that gap.
Payment Bond Claims on Public Projects
The Miller Act requires prime contractors on federal projects over $100,000 to post a payment bond before work begins.4Office of the Law Revision Counsel. 40 U.S.C. 3131 – Bonds of Contractors of Public Buildings or Works The bond is a financial guarantee from a surety company. If the general contractor does not pay, you file a claim against the bond instead of placing a lien on the property.
Deadlines under the Miller Act are strict and differ depending on your position in the project hierarchy. First-tier subcontractors, those with a direct contract with the prime, can file suit in federal district court starting 90 days after their last day of work or last material delivery, and must file no later than one year after that date. No advance notice to the prime is required. Second-tier subcontractors, those who contract with a first-tier sub rather than the prime, must send written notice to the prime contractor within 90 days of their last day of work, and then file suit within one year of that date.5Office of the Law Revision Counsel. 40 U.S.C. 3133 – Right of Action and Jurisdiction Any Miller Act suit must be filed in the U.S. District Court for the district where the contract was performed, and notice to the prime must be delivered through a method that provides written, third-party verification of delivery.
Most states have their own “Little Miller Act” statutes requiring payment bonds on state-funded projects like schools, highways, and municipal buildings. Bond thresholds and notice deadlines vary. Check your jurisdiction’s requirements early in the project rather than after a payment dispute arises.
Trust Fund Statutes
Roughly 19 states have enacted construction trust fund statutes that treat money received by a general contractor for the purpose of paying subcontractors as funds held in trust. When an owner or lender disburses money earmarked for subcontractor work, the general contractor becomes the trustee of those funds. Spending them on other projects, overhead, or personal expenses counts as a diversion.
Consequences for diverting trust funds are serious. Depending on the state, remedies can include civil liability with interest, attorney’s fees, and treble damages. Many states also impose criminal penalties ranging from misdemeanor to felony. In some jurisdictions, individual officers and managers of the contracting company face personal liability for unpaid subcontractor claims if they knowingly participated in the diversion, and that liability may survive bankruptcy. If you suspect a general contractor is spending your payment money on other obligations, check whether your state has a trust fund statute. It gives you a legal theory that reaches beyond breach of contract and can reach the individuals behind the company.
Preliminary Notices and Records
Almost every remedy above depends on paperwork filed within tight deadlines, and the preliminary notice is the first and most commonly missed step. Many states require subcontractors to send a notice to the property owner, general contractor, and sometimes the construction lender within a set period after starting work. Deadlines typically fall between 20 and 90 days from your first day on site, depending on the state. In some jurisdictions, failing to send this notice means you cannot file a mechanic’s lien at all, regardless of how much you are owed.
To prepare a preliminary notice and any later lien or bond claim, gather several items early in the project. The legal property description from county records, not just the street address, since errors here can invalidate a lien claim. The legal names of the property owner, the prime contractor, and any construction lender. Your contract value, a description of the materials or services you are providing, and the date you first started work on the site. Ongoing documentation such as delivery tickets, daily logs, signed change orders, and correspondence about payment disputes.
Keep a tracking log with dates for every notice sent, payment requested, and payment received. If a dispute moves to litigation or a bond claim investigation, the surety or court will audit your records closely. A clear paper trail built from day one is worth more than a good lawyer hired after the fact.
Lien Waivers to Watch For
General contractors routinely require subcontractors to sign lien waivers as a condition of receiving each progress payment. These documents surrender your right to file a lien for the amount covered. Used properly, they are a normal part of the payment cycle. Used carelessly, they can strip away your most important collection remedy.
Four types are common, and the distinction between conditional and unconditional is the one that trips people up. A conditional progress waiver gives up lien rights for a specific payment amount only after that payment actually clears, and is appropriate to submit with each pay application. An unconditional progress waiver surrenders those rights the moment you sign, regardless of whether the check has arrived or cleared, and should only be signed after the funds are in your account. A conditional final waiver gives up all remaining lien rights once the final payment, including retainage, is received. An unconditional final waiver surrenders all lien rights immediately upon signing, and should be the very last document you sign on the project, after every dollar has cleared.
The single biggest mistake subcontractors make is signing an unconditional waiver before payment has cleared the bank account. Once signed, lien rights are gone permanently for that amount, even if the check bounces or never arrives. Many states have adopted statutory waiver forms and will not enforce waivers that deviate from the approved format, which provides some protection. In states without that safeguard, an unconditional waiver signed prematurely can be devastating.
Enforcing the Claim
Once rights are preserved through proper notices and documentation, the enforcement path depends on which remedy you are using.
For a mechanic’s lien, record the lien at the county recorder’s office in the county where the property is located. Government recording fees are generally modest and vary by jurisdiction. After recording, you have a limited window, roughly six months to two years depending on the state, to file a foreclosure lawsuit. The clock starts when the lien is recorded. If you do not file suit in time, the lien expires and cannot be revived.
For a Miller Act bond claim, follow the 90-day and one-year deadlines described above based on your tier. The surety will investigate the claim by reviewing project records to verify the debt before paying.5Office of the Law Revision Counsel. 40 U.S.C. 3133 – Right of Action and Jurisdiction
Whichever path you use, send all notices and claim documents through a method that provides written, third-party verification of delivery. Certified mail with return receipt is the standard, and some jurisdictions accept other methods that create a verifiable record. The point is to eliminate any dispute about whether the other side received your notice, because “I never got it” is the easiest defense to raise and the hardest to disprove without proof.