What Happens When a General Contractor Fails to Pay a Subcontractor?

In construction, subcontractors rely on general contractors to pay them for their work. But what happens when a general contractor fails to pay—even after getting paid by the property owner?

If you’re a subcontractor in this situation, Texas law offers several legal protections to help recover your money. In some cases, a property owner may also be liable, but only if specific legal steps are followed.

This guide explains your rights, legal options, and what to do if you’re facing nonpayment.

Is It Legal for a General Contractor to Withhold Payment?

A general contractor must pay subcontractors who complete their work unless there is a valid dispute over quality or performance. In non-residential projects, they can withhold 100% of the disputed amount, while in residential projects, they can hold up to 110%.

If there is no valid dispute and the contractor still refuses to pay, they may be in breach of contract and violating Texas law.

Texas Prompt Payment Act: Deadlines for Contractor Payments

Private Projects (Texas Property Code §28)

Owners must pay the general contractor within 35 days of receiving an invoice.

The general contractor must pay subcontractors within 7 days of receiving payment.

Late payments accrue 1.5% interest per month (18% annually).

Texas Construction Trust Fund Act: Holding Payments in Trust

Under the Texas Construction Trust Fund Act, general contractors must hold payments in trust for subcontractors and suppliers. If a general contractor misuses these funds, they can face civil and criminal penalties—including personal liability.

Can a Landowner Be Liable for a Subcontractor’s Unpaid Work?

A property owner is not automatically responsible for unpaid subcontractors. However, they may be liable for unpaid amounts if:

  • The subcontractor sends the proper legal notices on time.
  • The owner has withheld retainage or unpaid funds from the general contractor.
  • If a subcontractor misses the legal deadlines, they lose their right to claim payment from the owner.

Mechanic’s Liens: A Powerful Tool for Unpaid Subcontractors

If a general contractor won’t pay, subcontractors can file a mechanic’s lien against the property.

How a Mechanic’s Lien Works:

  • The subcontractor sends a pre-lien notice to the owner and contractor.
  • If unpaid, the subcontractor files a lien on the property.
  • The lien can lead to foreclosure, forcing payment.
  • The general contractor is typically required to indemnify the owner under Texas law.
  • A properly filed lien gives subcontractors strong legal leverage but must follow strict deadlines to be valid.

What to Do If a General Contractor Doesn’t Pay

If you’re a subcontractor facing nonpayment, take these steps:

  • Send a Demand Letter – A formal request may prompt quick payment.
  • Check Lien Deadlines – Ensure you send all required pre-lien notices on time.
  • Enforce the Prompt Payment Act – You may be entitled to penalty interest on overdue payments.
  • File a Trust Fund Claim – The contractor may be personally liable if they misused funds.
  • Seek Legal Help – A construction attorney can help you take legal action if needed.

Conclusion: Protecting Your Right to Payment

Subcontractors deserve to be paid for their work. Texas law provides several legal tools, including prompt payment penalties, mechanic’s liens, and trust fund claims, to help recover unpaid amounts.

If you’re dealing with nonpayment, acting quickly and following legal notice requirements is key to protecting your rights.

Need Help with a Construction Payment Issue?

If you’re a subcontractor facing nonpayment or a contractor involved in a payment dispute, contact [Your Firm Name] today for legal guidance.