I don’t know the answer to your question, but the brevity of your post on such a big question means it will be difficult to answer. Who said that your friends are liable and why are they liable? Have your friends already paid the general contractor either partially or in full? Was the work completed? I believe some states have laws that the GC must pay subcontractors within a certain time from when it receives progress payments from homeowners. So there may be laws in your friends’ state that would help them, they need to find that out. But if the contract had added a provision you mentioned that your friends would not be liable if the GC disappears, how would that do anything if the contract is only between your friends and the GC, and the GC has disappeared? Sorry, these are the questions that come to mind.

@Stax correct but we pay contractor who is obligated to pay them. my friends had to oay twice because their contractor took the money for subs and ran

Some of the best legal advice is received from attorneys.

I do not know why your friends would pay twice without first talking with an attorney. Twice? How much money have they paid out?

@M Miller - great questions. They paid the contractor for the work. The subs did a ton of work and were not paid for it (framing, electric). The contractor disappeared. The subs sued the owners - not the GC - for the $. They consulted a real estate attorney who advised them to settle as the cost of litigation would be $$$$ and the GC probably no longer had the $. This was years ago. We would like to avoid a similar situation.

Note that our reno is lower stakes - they were building a house, we're doing kitchen reno.

Thanks.

It just seems to me that your contract will be between you and your GC, signed only by you and your GC. So anything you put in it would have no effect on subcontractors’ ability to sue you or not. But as mentioned, discuss with a construction attorney, not strangers on the internet. Laws vary by state.

@M Miller - that's kind of what my GC said - thank you! I posted here because I thought someone might have had a similar situation and language for a contract.

Sally T:

Your fear is easily avoided by simply getting lien waivers from subs. Tell the GC he's not getting paid until he hands them to you. He shouldn't need your money to pay his subs.

@Joseph Corlett, LLC - thank you! SUCH a HELPFUL RESPONSE. A real estate lawyer friend offered to read the contract and liked the lien waiver idea. Will report back.

“Your fear is easily avoided by simply getting lien waivers from subs. Tell the GC he's not getting paid until he hands them to you.”

The logistics of this suggestion do not work. Subcontractors do not provide lien waivers until after they have been paid in full after the completion of the job. Subcontractors won’t provide lien waivers before that - why would they forego their protections by providing lien waivers before they’ve been paid in full? At the same time, no GC will wait until the end of a project before getting at least a sizeable upfront payment - typically 50% - to purchase parts and supplies, and also may get progress payments depending on the size and length of the job.

I reiterate what I wrote earlier - discuss with a construction attorney; do not take advice on this matter from strangers on the internet. Laws also vary by state. Your real estate lawyer friend must do mostly escrow and property closing documents - s/he is evidently not the one to rely on in this matter.

All depends on the jurisdiction.

Here, our Construction Act protects the contractor or homeowner as long as they withhold 10% of the payments, whether staged or not, for no longer than 28 days. And contracts that purport to avoid the Act, are illegal. (Like the one I signed today as a "constructor" saying NO HOLDBACKS.)

@M Miller - thank you! I appreciate your perspective. VERY helpful.

I misspoke - my friend is a construction attorney, in my town, so it will be helpful to have his suggestions.

You don't want a real estate lawyer to look over your contract.

You want a CONSTRUCTION LAWYER to look over your contract. Big difference.

@cpartist - see my latest comment. he IS a construction lawyer!

@bry911 - you make excellent points and have great advice. THANK YOU!

M Miller:

You make some fair points. I'll concede my suggestion could be difficult logistically, but not impossible. Sally asked for a foolproof solution and I gave her one.

Require the contractor to obtain a performance bond, ~5% of bond coverage. Requires the contractor to have assets equal or greater than amound of bond.

"I'll concede my suggestion could be difficult logistically, but not impossible." Actually, Joe, it's neither impossible nor difficult. In Virginia, where my company designs and builds homes, it is typical for mechanic's lien agents (either an attorney or a title company) to poll each and every contractor registered with them and to check for clear title before authorizing a progress payment on a custom home. In addition, the final payment is usually contingent upon obtaining a final waiver and release of liens from the general contractor. To illustrate the process, let's say a builder has requested a progress payment due at completion of the plumbing, mechanical, and electrical rough-in work. The lien agent checks with each trade contractor, gets lien waivers and then authorizes payment to the general contractor.

I'm not suggesting this as the solution but my husband and I (both attorneys, neither construction nor real estate) had this happen to us with a scam contractor on a deck build. We contacted our county attorney who opened an investigation and found complaints against the guy all over the county. He was charged criminally with fraud and found guilty. He was ordered to repay us, including amounts we paid to his subs, as restitution as part of his sentence. Even without the repayment, stopping the guy from defrauding homeowners was worth it to us.

"Subcontractors do not provide lien waivers until after they have been paid in full after the completion of the job. Subcontractors won’t provide lien waivers before that - why would they forego their protections by providing lien waivers before they’ve been paid in full?"

No, they are called Partial Waivers of Lien. At any point in time a subcontractor is signing that whatever costs are being charged is getting reimbursed for that. At the end of project, a Final Waiver of Lien. Though, in residential, contractors that are sophisticated with paperwork is a hard find, so you have to pay for a "higher-grade" contractor which probably means a higher project cost.

"At the same time, no GC will wait until the end of a project before getting at least a sizeable upfront payment - typically 50% - to purchase parts and supplies, and also may get progress payments depending on the size and length of the job."

A 50% deposit is out of line. A General Contractor that does not have a line of credit should stick to building doghouses. Even Joe Deckbuilder can charge materials to his HD credit card.

@3onthetree - regarding the 50% upfront payment, perhaps it’s regional. Also the OP is talking about her kitchen project, not about construction of a new home. Literally every improvement project or renovation I have ever done has required 50% upfront upon signing the contract. Whether it’s been a new kitchen, new windows, carpeting, tuckpointing, painting (interior or exterior), bathroom renovation, millwork, flooring restoration, patio paving, electrical overhaul - all required 50% upfront without exception.

Any good contractor in my area has way more jobs than he can handle. If a homeowner objects to 50% down, and says to him, in your words, ”A 50% deposit is out of line. A General Contractor that does not have a line of credit should stick to building doghouses”, the contractor would shrug, and move on to his next homeowner who is clamoring for him to start work on their project with 50% payment ready to go.

I can't speak to what would be considered typical for a replacement project down payment (e.g., replacement windows or siding,) but a 50% down payment for a remodeling project in our (coastal VA) area would be considered excessive. 20% to 25% would be more typical. Down payment for custom home construction in our area is typically 10% +/-

I‘m in MA and giving about 20% as deposit which seems reasonable to me