Hiring a Subcontractor in NY? Here's What to Include in Your Agreement

 By Kushnick Pallaci PLLC | www.nyconstructionlaw.com

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Introduction

Hiring a subcontractor can either make or break your construction project. Whether you’re a general contractor working on a commercial buildout or a property owner managing a residential renovation, the subcontract agreement is more than just paperwork—it's your legal safety net.

In New York, where construction litigation is common and subcontractor issues can derail entire projects, having a clear, enforceable subcontractor agreement is non-negotiable.

At Kushnick Pallaci PLLC, we help clients across New York draft, review, and enforce solid subcontract agreements. Here’s what to include to protect your project—and your bottom line.

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Why a Detailed Subcontract Matters

Too many contractors rely on vague proposals or boilerplate templates. That’s a mistake.

A well-drafted subcontract spells out:

• What work is expected

• When it needs to be done

• How and when payment will be made

• Who’s responsible if something goes wrong

Without clarity, you leave room for dispute. We’ve represented both GCs and owners in lawsuits where poorly written subcontracts were at the heart of six-figure litigation.

A good subcontract is your first line of defense when conflicts arise.

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Scope, Deliverables, Deadlines, and Payment Terms

Start with the basics:

• Detailed scope of work: Attach plans, specs, and written descriptions

• Milestones: Break down the job into stages with corresponding payments

• Completion deadlines: Be specific about timing and penalties for delays

• Payment terms: Define how much, when, and under what conditions payment is made

Clear documentation reduces the chance of “I thought that wasn’t included” arguments.

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Essential Clauses Every Subcontract Should Have

To protect yourself from liability and limit financial exposure, include the following:

1. Indemnity and Hold Harmless Provisions

These clauses require the subcontractor to assume responsibility for claims arising out of their work—especially injury, property damage, or code violations.

New York has strict rules on these clauses under General Obligations Law § 5-322.1, so they must be carefully worded to be enforceable.

2. Insurance Requirements

Always require proof of:

• General liability coverage

• Workers’ compensation

• Additional insured endorsements naming your company

Include a right to request updated certificates before releasing any payment.

3. Termination and Default Clauses

Spell out the conditions under which you can terminate the subcontractor—such as failure to perform, delay, safety violations, or breach of contract. You should also address how much they’ll be paid (if anything) upon termination.

Having a proper termination clause makes all the difference in avoiding litigation. Learn more on our Construction Contract Termination Issues page.

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Avoiding “Pay-If-Paid” and “Pay-When-Paid” Confusion

Subcontractors often agree to wait for payment until you’re paid by the owner—but how enforceable is that?

In New York, “pay-if-paid” clauses are generally unenforceable if they shift the risk of owner nonpayment to the subcontractor. On the other hand, “pay-when-paid” clauses may be enforceable if they only delay payment but don’t eliminate your obligation altogether.

To avoid cash flow problems or legal disputes:

• Be transparent about payment triggers

• Avoid vague payment timelines

• Consider including provisions for disputed invoices

If you’re unsure how to structure your payment language, we can help. Visit our Contract Drafting and Review page to get started.

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Dispute Resolution: Litigation, Arbitration, or Mediation?

Every subcontract should state how disputes will be resolved. Your options include:

• Litigation: Offers full discovery and appeal rights; best when issues are complex

• Arbitration: Usually faster, private, and final—but less flexible and often expensive

• Mediation: A non-binding process that can save relationships and costs

At Kushnick Pallaci PLLC, we often recommend litigation for high-stakes disputes and mediation for smaller disagreements that don’t justify full-blown courtroom battles.

Make sure your dispute resolution clause matches the nature of the project—and your risk tolerance.

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How Kushnick Pallaci PLLC Helps Draft and Enforce Subcontracts

We’re not just contract drafters—we’re litigators who know what holds up in court.

When clients come to us, we:

• Draft customized subcontractor agreements with enforceable clauses

• Review proposed subcontracts before you sign, identifying hidden risks

• Enforce agreements through negotiation, arbitration, or litigation when problems arise

And when a subcontractor walks off the job, files a mechanics lien, or threatens to sue—we’re ready to fight. Our experience in Subcontractor Dispute Litigation spans from Queens to Suffolk County and everywhere in between.

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Conclusion

Don’t let a vague subcontract expose you to unnecessary risk. Whether you're a general contractor, construction manager, or property owner, a detailed and enforceable subcontractor agreement is one of the smartest investments you can make.

If you’re hiring a subcontractor in New York, let Kushnick Pallaci PLLC draft or review your agreement—before things go wrong.

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📞 Call Today: (631) 752-7100
📍 Visit Us: www.nyconstructionlaw.com
📧 Email: vtp@kushnicklaw.com

🔗 Related Pages:

• Contract Drafting and Negotiation

• Construction Litigation Services

• Mechanics Lien Defense and Enforcement

• Termination & Delay Claims

Construction Contracts Gone Wrong: What Triggers Litigation in NY

 By Kushnick Pallaci PLLC | www.nyconstructionlaw.com

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Introduction

New York construction projects are full of moving parts—tight deadlines, big budgets, multiple trades, and unexpected surprises. That’s why contracts are essential. But even the most carefully drafted construction agreement can’t guarantee smooth sailing. When things go wrong, disputes arise, and litigation can follow.

At Kushnick Pallaci PLLC, we’ve spent years litigating high-stakes construction contract disputes in New York. From non-payment claims and scope fights to termination battles and fraud allegations, we’ve seen it all. Here’s a look at the most common triggers for lawsuits—and how to protect yourself before the first shovel hits the ground.

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Typical Triggers: Payment Issues, Scope Disputes, Termination

Litigation usually starts when one side feels they’ve been shortchanged. The most common triggers include:

1. Payment Problems

Unpaid invoices, withheld retainage, or disputes over extras often lead to claims. Contractors might file mechanics liens, and owners might withhold payment for alleged defects or delays.

2. Scope of Work Disputes

Misunderstandings over what work was included (and what wasn’t) can turn ugly fast. When a contractor believes they’re doing extra work without proper compensation—or an owner claims a contractor skipped something critical—litigation isn’t far behind.

3. Termination

Whether it's a wrongful termination by the owner or abandonment by the contractor, severing the relationship mid-project is one of the most combustible scenarios in construction. Often, both parties claim the other breached the contract first.

These disputes often arise in both commercial and residential settings—from Manhattan co-ops to Long Island retail developments.

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Breach of Contract vs. Fraud Claims

Not all lawsuits are created equal. In New York, construction litigation generally falls into two buckets: breach of contract and fraud-based claims.

• Breach of Contract: The most common cause of action. It involves failure to perform a contractual duty—like not finishing on time, not paying, or using inferior materials.

• Fraud: A more serious claim that requires proof of intentional deception. This often arises when one party alleges the other misrepresented licensing status, construction experience, or project financing.

It’s worth noting: courts scrutinize fraud claims closely. Simply failing to deliver is not fraud. You need evidence of intentional misrepresentation, which is why we often defend against these claims aggressively.

At Kushnick Pallaci PLLC, we help clients distinguish between a breach and a viable fraud claim—so the case doesn’t get dismissed at the start.

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Using Written Change Orders to Avoid Trouble

One of the biggest pitfalls in construction is the verbal change order.

Contractors perform extra work thinking they'll get paid. Owners approve changes in the field without formal documentation. Then when the final bill arrives, one side is shocked.

To avoid this, every construction contract should:

• Require written change orders

• Outline who has authority to approve them

• Specify the pricing method (fixed cost, time and materials, etc.)

When disputes do arise, the presence—or absence—of signed change orders can make or break your case. Courts in New York give significant weight to contractual documentation, especially when terms are clear.

Need a better contract? Start with our construction contract review services to minimize risk before problems start.

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What to Include in Your Contract to Stay Protected

A solid contract won’t guarantee a problem-free project—but it will give you leverage when things go wrong. We recommend including:

• Clear scope of work with exhibits and plans

• Defined payment terms, milestones, and conditions for release

• Dispute resolution clauses (litigation vs. arbitration)

• Termination clauses explaining rights and procedures

• No oral modification clauses to protect against verbal promises

• Insurance and indemnity provisions tailored to project size and risk

If you're unsure about your contract’s enforceability, have Kushnick Pallaci PLLC review or draft it to ensure it's legally sound and customized to your goals.

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How Kushnick Pallaci PLLC Litigates and Resolves Disputes

When a construction contract goes off the rails, we step in to:

• Review the contract and all supporting documents

• Evaluate defenses and counterclaims (e.g., breach, delay, fraud, unjust enrichment)

• Initiate or defend litigation in Supreme Court or federal court

• File or vacate mechanics liens tied to the dispute

• Engage in strategic settlement negotiations or mediation

Our litigation team has handled disputes from six-figure renovation contracts to multimillion-dollar commercial construction battles. We know the players, the law, and the tactics that get results.

Our goal? To resolve disputes efficiently—without letting legal fees eat up your project budget. Whether it’s a strong pre-litigation demand letter or a full-blown trial, we tailor our approach to the facts and your objectives.

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Conclusion

Construction litigation in New York is complex, but it’s often avoidable. Clear contracts, careful documentation, and knowing your rights can prevent many disputes—or give you the upper hand when they arise.

If you're facing a construction contract dispute, don’t wait until you're buried in claims or liens. Let Kushnick Pallaci PLLC protect your investment, assert your rights, and move your project forward.

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📞 Call Today: (631) 752-7100
📍 Visit Us: www.nyconstructionlaw.com
📧 Email: vtp@kushnicklaw.com

🔗 Related Pages:

• Construction Litigation Services in NY

• Contract Drafting & Review

• Mechanics Liens – What You Need to Know

Foreclosing on a New York Mechanic's Lien

One of the most common questions I encounter is "I filed a mechanic's lien, now what?"  In New York a mechanic's lien is not self enforcing.  So if you want to put your mechanic's lien to work for you, you need to file a lien foreclosure action.  Watch the short video below for more information.

Vincent T. Pallaci is the managing member of Kushnick Pallaci PLLC.   Kushnick Pallaci PLLC regularly counsels clients on filing and enforcing mechanic's liens.

Know and Understand Lien Law Section 38

The first response to a Lien should always be a demand under Lien Law Section 38.  Watch the video below for more information.

The law firm of Kushnick Pallaci, PLLC represents the construction industry across the State of New York from their Buffalo and Long Island offices.

Albany Contractors Should Make Sure They Maintain Proper Lien Law Trust Records

The Lien Law trust laws, contained within Article 3A of the Lien Law, are something that most contractors have heard of, but very few understand.  This is unfortunate since the Lien Law trust laws are one of the few areas of the law that are, arguably, intended to protect contractors, or more particularly, subcontractors, suppliers and vendors (as opposed to owners).  In a nutshell, Article 3A of the Lien Law requires every "trustee" to keep all funds that he receives on a construction project in a "trust account" for the benefit of the trust beneficiaries. Just who is a trustee is not always clear but the following general guidelines may be helpful:  1) if an owner receives a construction loan the owner is a trustee; 2) a general contractor is always a trustee of funds received from the owner; 3) a subcontractor can be a trustee if he, she or it owes money to a sub-subcontractor, materialman, vendor or supplier; or 4) a sub-subcontractor and beyond can be a trustee under the same circumstances as a subcontractor.  A simple rule of thumb is that if you are receiving money on a construction project in the State of New York and you owe money to someone else for labor or materials that they supplied to you on that same project then you most likely are a Lien Law trustee and all monies that you receive are "trust funds."

Lien Law trustees must pay all beneficiaries of the trust before they can use the funds for non-trust purposes.  Most importantly, you cannot use the funds for another project and you cannot use the funds to take your profit until you have satisfied all trust claims.  While the Lien Law does require you to maintain these funds in a trust account, it is generally accepted that you do not need a separate account for each project.  Rather, you must keep separate books and records for each project.  But keeping the funds in one account is not, in and of itself, a trust violation.  Your books and records for the project should show the name of the project, the date and amount of payments received and the date, amount and payee of each payment made from the trust funds.  For example, if the general contractor (GC) receives a $100,000 payment from Owner (O) on Project X and then pays $25,000 to Subcontractor A, $25,000 to subcontractor B and $25,000 to supplier C, each of those transactions must show up on GC's books and records.  Each would be a proper use of the Lien Law trust funds.  The remaining $25,000 from O on Project X, assuming no other beneficiaries have trust claims, can be used by the GC as it sees fit whether that be to take profit, use on another project or something else.

In the above example, GC gets into trouble when Subcontractor D is still owed money but rather than pay Subcontractor D, GC takes $25,000 to order materials for Project Z.  This scenario results in a Lien Law trust violation.  The consequences can be disastrous for the trustee.  First, the court has the ability to order the trust funds repaid if possible.  Second, diversion of trust funds is a crime that you can be prosecuted for.  Third, diversion of trust funds exposes corporate principals to personal liability.  Fourth, diversion of trust funds exposes the trustee to potential punitive damages and attorneys' fees awards.  In summary, diverting trust funds can put you in a whole heap of trouble.  While troublesome for the trustee, everyone below him that was owed money and was not paid is offered the additional leverage of the trust claim in their pursuit of the money they are due on the project.

Lien Law Section 75 requires all trustees to maintain careful and accurate books and records of all of these trust transactions.  Failure to maintain proper books and records creates a legal presumption that the trust laws have been violated.  While not a final determination, overcoming this presumption in litigation can be very difficult and, in many cases, impossible.  As a beneficiary of the trust, you are allowed, under Lien Law Section 76, to demand that the trustee provide you with a verified statement, in writing, showing each of the entries on the books and records of the trust account.  In other words, if a general contractor tells you he hasn't paid you because the owner hasn't paid him you can demand to see his books and records for the project and the general contractor is legally required to disclose them to you.

Another significant reason to be concerned about the Lien Law trust laws is that a contractor, or contractor's principal, that is found to have diverted trust funds, and is found liable for that diversion, cannot discharge the claim in bankruptcy.  That means the debt will follow the contractor for at least 10 years, and more likely 20 years, and there will be no way for the contractor to get away from it.  While that is a long time to wait, it is an added security for the subcontractors that are not paid as they will be able to pursue their claim notwithstanding a bankruptcy.  Especially in the current economy where many general contractors are declaring bankruptcy, being able to pursue a claim despite the bankruptcy is a strong deterrent against general contractors diverting trust funds instead of paying their subcontractors.

One very important caveat:  a Lien Law trust fund claim has a very short statute of limitations.  It must be brought within 1 year from the time that either the project was completed (if you are a general contractor) or 1 year  from the time that the payment was due from the general contractor or the project was completed, whichever is later (if you are a subcontractor).   Therefore, you must stay on top of anyone that owes you money and keep careful track of the money.  Don't be afraid to exercise your rights under Lien Law Section 76 if you have not been paid and you think someone may have diverted money on the project.  When in doubt, contact your attorney to find out what rights you have and to make sure you preserve any potential claims you may have.  A good construction attorney will be able to use tools such as the demand pursuant to Lien Law Section 8 or the demand for a verified statement pursuant to Lien Law Section 76 to help establish and set up a trust diversion claim for you.

Vincent T. Pallaci is a partner in the New York law firm of Kushnick Pallaci, PLLC.  His practice focuses primarily on the area of construction law including prosecuting and defending claims for diversions of New York Lien Law trust laws.

Albany contractors beware: Exaggeration of your Albany mechanic's lien could lead to big trouble

Contractors have become as familiar with using mechanic's liens on their New York construction projects as they are with issuing change orders.  However, while issuing a change order that is exaggerated will simply result in denial of the change order, filing an intentionally exaggerated mechanic's lien can have a number of consequences that go beyond non-payment of the lien.

When a contractor is not paid one of the most common initial reactions is to file a mechanic's lien.  Unfortunately, some of those liens do not accurately reflect the amount currently due and properly lienable.  Of course there are certain contractors that intentionally inflate the lien thinking it will perhaps give them more leverage to negotiate or increase the chances of quick payment.  Some contractors file the intentionally exaggerated mechanic's lien simply to irritate and infuriate the person that owes the money and refuses to pay.  Still there are others that exaggerate the mechanic's lien but do so unintentionally.  The unintentional exaggeration can result from accounting errors, believing that certain items may be liened when, in fact, they may not or liening for the entire contract balance (including work yet to be performed) rather than the value of the labor and materials actually performed and unpaid for at the time of the filing of the lien.  All of these exaggerations can be trouble.

In New York, a mechanic's lien should only be filed for the amount of the labor and materials actually performed and unpaid for at the time that the lien is placed.  You also should not file a lien for items such as delay damages or liquidated damages.  While you can, of course, still sue for those damages under other theories, your mechanic's lien must be limited to the value of the labor and materials incorporated into the improvement of the real property.

An unintentional exaggeration of a lien may simply result in no being able to recover that portion which is not exaggerated. However, person challenging the lien will likely charge that the lien was intentionally exaggerated and you will be forced to defend yourself against this claim.  In addition to dragging out the time and cost of the litigation, it will test the accuracy and adequacy of your book and record keeping practices.  Challenging a lien that is exaggerated is a common defense because if the mechanic's lien proves to have been intentionally exaggerated there are devastating consequences to the lienor.

First and foremost a mechanic's lien that has been found to have been intentionally exaggerated is void.  You therefore lose your entire lien - even the legitimate portion.  Also, the lienor faces liability equal to the amount of the exaggeration.  In other words, if a lienor is properly owed $20,000.00 but intentionally exaggerates the lien to $50,000.00 then not only is that entire lien void, but the lienor can be held liable to the owner for the amount of the exaggeration ($30,000.00).  Some courts will even award treble damages meaning that the $30,000.00 intentional overcharge  becomes a $90,000.00 liability.  Intentionally exaggerating a mechanic's lien can also expose the lienor to attorneys' fees and other consequential damages.  For example, an owner faced with an intentionally exaggerated mechanic's lien may assert a claim for slander of title.  If successful, the slander of title claim could expose the lienor to significant damages - especially if the exaggerated lien prevented the sale of the property.

It is important to keep in mind that proving "intent" in the exaggeration can be very difficult.  An unintentional exaggeration or an arguable charge will not provide the relief available in association with an intentional exaggeration.  If faced with a potentially exaggerated mechanic's lien it is important to consult with competent construction law counsel that can guide you through this difficult area of law.  Construction counsel can help you better understand your situation and your rights and liabilities.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.

Be careful when assigning your Albany mechanic's lien

Mechanic's liens are freely assignable.  However, a common mistake is when the assignee of the lien fails to record the assignment in the County Clerk's office.  The assignment must contain the names and addresses of the assignee and assignor, the amount of the lien and the date of filing of the lien.  If the assignment is not filed, a subsequent action to foreclose upon a mortgage or a lien need not include the assignee as a party.  More importantly, if the owner pays the original lienor, and the assignment has not been recorded, then payment to the original lienor will be an absolute defense to the enforceability of the lien.  For more information about the assignment of mechanic's lien read Lien Law Section 14.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.