Every contractor has most likely been tempted to halt a job at one point or another over not getting paid. Before calling it quits though, attorneys advise be sure you understand relevant laws in your state, carefully review your contract, provide notice accordingly, and document everything. Better still? Invest in contract upgrades and early interventions which can curtail the need to stop a project in motion and positively impact the bottom line.
Protecting Your Business
Chad V. Theriot, the coleader of the construction legal team at Jones Walker, cautions that hastily terminating a contract can be very dangerous for construction business owners, leading to protracted litigation, as well as “damaged reputation, eroded bonding capacity and mandatory disclosures of defaults on future bids” — which can prove crippling to businesses. Of course, not getting paid as work is being completed is also crippling. Accordingly, Theriot recommends safeguarding construction contracts and operations with proactive use of these best practices:
- Contract drafting upgrades — Incorporate escalation clauses for material cost surges tied to tariffs and define “essence” breaches with objective metrics (e.g., payment delays exceeding 30 days trigger suspension rights). Reference Kiewit-Turner precedents in the boilerplate to deter aggressive owner tactics.
- Early intervention protocols — Form cross-functional teams (legal, finance, operations) to monitor red flags such as payment lags or excessive requests for information. Seek formal assurances via certified letters and engage neutral mediators before disputes harden — reducing escalation costs by up to 40%, per industry benchmarks.
- Bonding and insurance alignment — Review surety policies for coverage of suspension-related losses and negotiate endorsements for economic force majeure events such as interest rate spikes.
For contractors, the “difference between resilience and ruin,” according to Theriot, also requires documenting everything, seeking assurances early on, and obtaining legal counsel before terminating work. Attorneys at Clark Guldin Law in New Jersey further stress that “knowing the proper legal steps is crucial to protect your business and avoid further complications,” and offer this guidance about stopping work in the absence of pay, based on state law:
- New Jersey law recognizes your right to stop work when facing non-payment. The state generally permits contractors and subcontractors to stop work when a client fails to pay on time.
- The Prompt Payment Act in New Jersey supports this. It helps ensure you are not forced to continue investing in a project without fair compensation.
- Before you stop any work, review your contract carefully. Make sure that stopping work will not put you in violation of any previously agreed-upon conditions.
- Some contracts require waiting periods or dispute resolution attempts first. Other contracts even contain “pay-when-paid” or “pay-if-paid” clauses that could affect your right to stop work….
- Providing proper notice helps protect yourself legally. This usually means sending a written notice via certified mail with a return receipt…. This…gives the client a chance to correct their actions. Moreover, it shows you acted in good faith to resolve the situation first.
Although stopping work is sometimes the right choice, it should not be done unless it is a last resort. For example, Clark Guldin Law suggests that it is critical to “maintain relationships while asserting your rights,” and offer: “reasonable solutions like payment plans or partial work resumption once you receive some payment. This shows good faith and often leads to faster resolution than aggressive tactics. You may also consider filing a construction lien on private jobs within New Jersey’s deadlines if payment still stalls.”
Roadmap To Resolution: The Contract
Given the costly and disruptive nature of disputes, construction business leaders are advised to lean in heavily during contract negotiations. Contracts are not just formalities or hurdles to getting the work going: a properly written contract can actually serve as the roadmap to resolution in the event of conflicts once work begins. James Gallagher of Resolution Management Consultants advises reviewing construction contracts to avoid these common mistakes:
- A detailed process for communicating and handling changes is lacking.
Virtually all projects experience changes during their construction. Contracts should stipulate a formal process for communicating, approving and making changes that is followed by all and approved by all….
- The Force Majeure clause needs to be updated.
…. The concept of Force Majeure has evolved to include modern day catastrophes, such as the pandemic, global supply chain interruptions, wars and other calamities. In modern construction contracts, it is important that Force Majeure clauses are revised to provide for today’s realities.
- Project scope is not well-defined, or the wording is too general.
For example, instead of writing “install lighting,” the scope should include a detailed description of the complete scope and steps for the lighting project. Different people understand things differently. The best contracts enable all parties to understand the same things the same way.
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