Legal Implications of South Carolina’s Notice of Furnishing Labor or Materials
In an earlier post, I discussed the practical benefits afforded by the Notice of Furnishing Labor or Materials when sent to the general contractor (“GC”) by a subcontractor or supplier who is second-tier or below. Today, we’ll take a look at the legal protections the Notice provides to those lower-tier contractors.
First, it must be noted that South Carolina law does not impose a Notice of Furnishing requirement on a first-tier subcontractor (i.e., a contractor who has a direct contractual relationship with a general or prime contractor). The reason the Notice is applicable only to more remote parties only is simple – first-tier subcontractors have a direct line to the GC in terms of contract, payment, communication, etc. So, in theory, there should be no need for any additional notice requirements between those parties. However, this changes for subcontractors and suppliers who are further removed from the general or prime contractor. The GC may not know the identity of all its subcontractors’ suppliers, and it may know even less about what each of those parties is owed by the subcontractor.
The legal benefits of a Notice of Furnishing Labor or Materials can best be demonstrated with a hypothetical. Say, for example, you’re a remote supplier/subcontractor on a project with no contractual relationship with the GC. Before you provide any actual work to the Project, you serve the Notice of Furnishing on the GC by Certified Mail. The Notice provides the GC with a variety of useful information, including your contact information, the value of work you are providing to the project, and the date the work is scheduled to be furnished. You subsequently perform your work in full, which is accepted and approved by the owner. The GC pays the intermediary first-tier subcontractor in full, who then absconds with the funds without paying you.
Since you had the foresight to serve the Notice of Furnishing, the GC will not be able to assert a payment defense against your claim – in other words, the GC has to pay you, even though he has already paid the subcontractor for your work. While this may seem like a harsh result for the GC, service of the Notice imposes upon him an obligation to make sure you are paid before releasing funds to the first-tier subcontractor. The GC can fulfill this obligation by requiring a lien waiver from you as a condition of payment to the first-tier subcontractor once he has been made aware of your work.
Conversely, if you fail to serve the Notice of Furnishing Labor or Materials, the GC can assert full payment to the first-tier subcontractor as a defense to your claim – in the eyes of the law, if the GC had no notice of your contribution to the Project, he won’t have to pay twice for the same work (assuming the GC properly filed and posted a Notice of Project Commencement within 15 days of the start of work pursuant to S.C. Code Ann. § 29-5-23).
A final word on the Notice of Furnishing: there is no statutory form that must be used to fulfill the notice requirement. However, the statute does outline a number of components the Notice must include in order to be effective, which can be found at S.C. Code Ann. § 29-5-20. A sample Notice of Furnishing form which includes the statutory requirements can be found here.