Authored by attorney Neil Lowenstein1
Below is a short summary of some of the statutory requirements and constraints in the North Carolina code regarding subcontract requirements for North Carolina projects (commercial or public).
Pay when paid (NCGS § 22C-2). Performance in accordance with its contract entitles subcontractors to payment (NCGS § 22C-2). Payment by an owner to a contractor is not a condition precedent for payment to a subcontractor, and payment by a contractor to a subcontractor is not a condition precedent to payment to any other subcontractor (NCGS § 22C-2).
Prompt payment (NCGS § 22C-3). Contractors shall pay subcontractors and each subcontractor shall pay his subcontractors within 7 days of receipt by them of each periodic or final payment when those payments include payments for the subcontractors’ work or materials.
Conditions precedent (NCGS § 22C-4). Payments can be conditioned upon satisfactory work and monies withheld for unsatisfactory progress, defective construction not remedied, disputed work, third-party claims filed or reasonable evidence that claims will be filed, untimely payment to lower tiers, damages to the contractor or another subcontractor, or reasonable evidence that the subcontract cannot be completed for the unpaid balance of the subcontract sum (NCGS § 22C-4). Additionally, retainage can be withheld, but not to exceed the initial percentage retained by the owner (NCGS § 22C-4).
Choice of law and forum selection clauses (NCGS § 22B-2). Forum clauses in contracts for the improvement of real property in North Carolina are void and against public policy if they: a) make the contract subject to the laws of another state; or b) provide exclusive forum for litigation, arbitration or other dispute resolution process in another state (NCGS § 22B-2).
Copyright 2015, Vandeventer Black LLP. Subcontract rights and obligations involve complex legal requirements. This summary of North Carolina subcontract related laws is for general information purposes and is not intended as specific legal advice.
1 Neil Lowenstein is licensed in North Carolina, as well as Virginia and the District of Columbia. Neil chairs Vandeventer Black’s Construction and Government Contracts Practice Group.
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