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A201®–2017, General Conditions of the Contract for Construction
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October 31, 2022
In construction projects, ensuring that subcontractors are paid properly is critical to maintaining smooth operations and avoiding legal issues. One method owners may use to guarantee subcontractor payment is issuing a joint check. A joint check is a payment made to both the contractor and a subcontractor, with both parties required to sign the check in order to cash it. This practice can help resolve payment disputes and protect against potential legal claims like mechanic’s liens or lawsuits.
What Are Joint Checks in Construction?
Joint checks are issued by owners to ensure that subcontractors receive payment for their work when there are concerns about the contractor’s payment practices. The owner may issue the check directly to both the contractor and the subcontractor to ensure proper payment.
Why Are Joint Checks Issued?
Joint checks are often used when the architect withholds payment certification because the contractor has not paid a subcontractor for work that was properly completed. In this case, the owner may step in and issue a joint check, making it payable to both the contractor and subcontractor. This ensures that the subcontractor is paid while also protecting the owner from potential legal claims, such as mechanic’s liens, lawsuits, or payment bond claims, which could arise if the subcontractor is not paid.
How Do Joint Checks Ensure Payment to Subcontractors?
A joint check requires the signatures of both the contractor and subcontractor, which means that both parties must agree to the payment. This provides an additional layer of accountability and reduces the likelihood that subcontractors will go unpaid for their work.
Risks Associated with Issuing Joint Checks
While joint checks can help resolve payment issues, they come with risks. Owners, contractors, and subcontractors may need to consult with legal counsel to create joint check agreements. These agreements can help ensure that the party issuing the check does not assume additional liability or lose certain rights by accepting the joint check.
Legal and Contractual Risks of Joint Checks
When issuing joint checks, it is important to understand the potential legal risks involved. Joint check agreements must be carefully drafted to avoid unintended consequences, such as assuming the contractor’s or subcontractor’s obligations or losing certain legal rights. Legal counsel is often required to ensure the agreement doesn’t lead to unintended liabilities for the owner or contractor.
Joint Checks in AIA Contracts: What You Should Know
The AIA contracts, particularly Section 9.5.4 of A201-2017, provide guidance on joint checks in construction projects. This provision states that the Owner may, at its discretion, issue joint checks to the contractor and subcontractor (or supplier) if the contractor fails to make payment for work performed or materials delivered. If the owner issues a joint check, both the contractor and the architect are typically required to account for the payment in subsequent payment applications.
Best Practices for Managing Payment Risks in Construction
The Importance of Joint Check Agreements
To mitigate risks, it’s crucial for all parties involved to enter into a well-drafted joint check agreement. This agreement will clarify each party’s obligations, outline the purpose of the check, and ensure that both the contractor and subcontractor understand their roles. Legal counsel should be involved in drafting these agreements to ensure compliance with applicable laws and to avoid unnecessary liabilities.
Steps to Take When Issuing Joint Checks
- Consult Legal Counsel: Engage an attorney to draft or review the joint check agreement to ensure it is legally sound.
- Clarify Payment Terms: Ensure that the payment terms are clearly defined, and that both the contractor and subcontractor understand their rights and responsibilities.
- Account for Payments in Future Applications: Ensure that the payment made via the joint check is properly accounted for in any subsequent payment applications.
Conclusion
While joint checks can be an effective tool for ensuring subcontractors are paid, they come with potential legal risks and complexities. By understanding the risks, using AIA contract provisions, and drafting careful joint check agreements, owners can reduce these risks and help maintain a smooth construction process. Always consult legal professionals when dealing with joint checks to ensure compliance and minimize liability.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.