Avoiding the Element of Surprise and the Notice of Furnishing Labor or Materials
Generally, no one benefits from surprises on a construction project. A particular problem that often catches general contractors by surprise occurs when a lower-tier subcontractor or materials supplier (i.e., one who does not contract with the general contractor but instead has a contract with a subcontractor) suddenly appears claiming that an unpaid contract balance is past due from the party with whom it contracted. While the subcontractor is typically required to disclose and identify his subs and suppliers through the payment application process, this doesn’t always happen as it should. As a consequence, general contractors may learn about the identity of these lower-tier parties for the first time when the claim is pursued.
Unfortunately, payment claims arising from this scenario aren’t going away any time soon; however, contractors, subcontractors and suppliers can make use of certain legal mechanisms to help minimize the need for such claims by putting general contractors on notice to potential claims before they arise.
For any party contributing labor or materials to a construction project who does not have a direct contract with the general contractor (again, those subcontractors and suppliers who are second-tier and below), South Carolina law provides that a Notice of Furnishing Labor or Materials should to the general contractor by Certified Mail, Return Receipt Requested (see S.C. Code Ann. § 29-5-20). This should be done — at minimum — at the beginning of the project. If the subcontractor/supplier provides work or materials at various times throughout the project’s duration, additional notices should be sent prior to any work done subsequent to the initial work or delivery of materials.
In a practical sense, the increased lines of communication that the Notice of Furnishing affords to parties who normally aren’t in contact with one another go a long way toward preventing claims of non-payment down the chain.
In addition to its practical benefits, the Notice of Furnishing Labor or Materials (or lack thereof) impacts the legal positions of both general contractors and remote subcontractors and suppliers in the event of a mechanic’s lien or payment bond claim.
While there is no statutory form that must be used to fulfill the notice requirement, the statute does outline a number of components the Notice must include in order to be effective. These statutory requirements can be found at S.C. Code Ann. § 29-5-20. A sample Notice of Furnishing form can be found here.