⚖️ Dispute Resolution for Subcontractors
You did the work. You're not getting paid — or not getting paid fairly. Now what? This guide walks you through every tool available to you, from documenting your claim to filing suit, so you can make informed decisions and recover what you're owed.
The best dispute is the one you never have — but the second-best dispute is the one you documented from Day 1. Your outcome in any dispute resolution process is almost entirely determined by the quality of your records. Start there.
Table of Contents
- Before the Dispute: Documentation Strategies
- When to Hire a Construction Attorney
- Informal Resolution: The First Step
- Mediation
- Arbitration
- Litigation
- Mechanics Liens as Leverage
- Stop Notices
- Payment Bond Claims
- Common Types of Construction Disputes
- Calculating Your Damages
- Protecting Yourself on Future Jobs
Before the Dispute: Documentation Strategies
The fight is won or lost before the dispute ever starts. If you don't have documentation, you don't have a case — you have a story. And stories don't hold up in arbitration or court.
Daily Reports Are Evidence
Your daily reports are the single most important piece of evidence in any construction dispute. If your crews aren't writing them, start today.
Every daily report should include:
- Date, weather conditions, and temperature
- Manpower on site (by trade and count)
- Equipment on site
- Work performed that day (specific locations and quantities)
- Delays encountered and their cause
- Visitors to the site (inspectors, owner's reps, GC supers)
- Verbal directions received (who said what)
- Safety incidents or concerns
- Materials delivered or shortages
Courts give far more weight to records created at the time events occurred than to documents prepared after a dispute arises. A daily report written the same day is a contemporaneous record. A summary written six months later for your attorney is not. The difference matters enormously.
Photo and Video Documentation
Take photos and videos every single day. Storage is free. Disputes are expensive.
| What to Photograph | Why It Matters |
|---|---|
| Conditions before you start work | Proves what was there when you arrived |
| Work in progress (with date stamps) | Proves installation sequence and timing |
| Concealed work before cover-up | Proves what's behind the wall |
| Site conditions causing delays | Proves the delay wasn't your fault |
| Defective work by others affecting you | Proves impact to your scope |
| Safety hazards | Proves you flagged them |
| Material deliveries and staging | Proves materials were on site |
Pro tip: Use an app that embeds GPS coordinates and timestamps in photos. If it ever goes to arbitration, metadata-stamped photos are nearly impossible to challenge.
Correspondence Trails
Email is your friend — but only if you use it right.
- Confirm all verbal directions in writing: "Per our conversation today, you directed us to..."
- Send emails to the person who gave the direction, CC your project manager
- Never say anything in email you wouldn't want read aloud in a courtroom
- Use subject lines that are searchable: "Project Name — Change Directive — Additional Blocking at Level 3"
- Save everything — sent and received
RFI and Change Order Paper Trails
Every RFI and every change order request is a building block of your dispute claim.
- Submit RFIs promptly when you encounter conflicts or unclear details
- Track response times — unanswered RFIs cause delays, and that's the GC's problem
- Submit change order requests within the contractual timeframe — miss the deadline and you may waive the claim
- Never do extra work on a handshake — get it in writing, or at minimum send a confirming email
- Track COR status — pending, approved, rejected, and disputed
Organizing Job Files for a Potential Dispute
If things go sideways, your attorney will need organized files. Don't hand them a box of random papers.
Organize by category:
- Contract documents — prime contract (if you can get it), your subcontract, all amendments and change orders
- Correspondence — emails, letters, meeting minutes, organized chronologically
- Daily reports — chronological, complete
- Financial records — pay applications, invoices, payments received, cost reports
- Schedule documents — baseline schedule, updates, delay logs
- Photos and videos — organized by date and area
- RFIs and submittals — with response dates and durations
- Change orders — both approved and disputed
When to Hire a Construction Attorney
Signs You Need Legal Help
Not every payment dispute needs a lawyer. But these situations do:
- You're owed more than $50,000 and informal resolution has failed
- The GC or owner has hired an attorney
- You've received a termination notice (or are considering sending one)
- Lien or bond claim deadlines are approaching
- The contract has a mandatory arbitration clause and you need to file
- You're facing back charges you believe are fraudulent
- You're being asked to sign a lien waiver for work you haven't been paid for
- The dispute involves defective work allegations against you
Finding a Construction Attorney
Do NOT hire a general practice attorney for a construction dispute. Construction law is specialized. A family law attorney who "also handles contracts" will cost you more and get you less.
| Where to Look | Notes |
|---|---|
| Associated General Contractors (AGC) | Local chapters maintain referral lists |
| American Bar Association — Construction Law Forum | Find credentialed construction lawyers |
| Other subcontractors | Word of mouth is often the best referral |
| Your surety broker or insurance agent | They know who handles construction claims |
| Local subcontractor associations (ASA, SMACNA, NECA, etc.) | Trade-specific referrals |
Attorney Fee Structures
| Structure | How It Works | Typical Range | Best For |
|---|---|---|---|
| Hourly | Pay for each hour of work | $300–$600/hr | Complex disputes, defense work |
| Contingency | Attorney takes a percentage of recovery | 25–40% of recovery | Large payment claims with strong evidence |
| Hybrid | Reduced hourly rate + smaller contingency | $150–$300/hr + 10–20% | Mid-size claims, moderate risk |
| Flat fee | Fixed price for specific tasks | $2,000–$10,000 | Lien filings, demand letters, contract review |
Before hiring an attorney, do the math. If you're owed $30,000 and the attorney estimates $20,000 in fees to pursue it through arbitration, you need to weigh whether the net recovery justifies the fight — plus the time and stress involved. Sometimes a negotiated settlement at 70 cents on the dollar is the smart play.
What to Bring to the First Meeting
- Your subcontract and all amendments
- All change order requests (approved and disputed)
- Pay applications and payment history
- Correspondence related to the dispute
- Daily reports covering the dispute period
- Photos
- A written timeline of events
- A clear summary of what you're owed and why
Most construction attorneys offer a free or low-cost initial consultation. Use that meeting to assess whether the attorney knows construction — not just law.
Informal Resolution: The First Step
Before you spend money on lawyers, mediators, or arbitrators, try to resolve the dispute directly. Most disputes are resolved informally if you approach it correctly.
Executive-Level Meetings
The project-level people (your foreman vs. their super) may be too close to the problem. Escalate to the principals.
How to set up an executive meeting:
- Send a written request to the GC's president or VP
- Frame it as problem-solving, not threatening: "We'd like to sit down and work through the open items on [Project]. Our goal is to find a resolution that works for both sides."
- Bring your documentation — organized and professional
- Bring a decision-maker from your side who can agree to a resolution
- Leave emotions at the door
Documenting Informal Attempts
Always document your resolution attempts. If the dispute escalates to mediation or arbitration, showing that you tried to resolve it informally first demonstrates good faith.
- Send a follow-up email after every meeting or phone call
- Keep a log of resolution attempts with dates, participants, and outcomes
- Save all written offers and counteroffers
When to Stop Trying
Stop informal resolution when:
- The other side won't engage or respond
- They're clearly stalling to run out your lien or claim deadlines
- The amounts are too large for handshake deals
- Trust has broken down completely
- Your contractual deadlines for formal dispute resolution are approaching
Don't let informal resolution attempts cause you to miss statutory deadlines for liens, bond claims, or contractual notice requirements. You can negotiate AND preserve your rights at the same time. File your lien or claim, then keep talking.
Mediation
Mediation is a voluntary, non-binding process where a neutral third party helps the disputing parties reach a settlement. It's almost always worth trying before arbitration or litigation.
How Mediation Works
- Both parties agree to mediate (or the contract requires it as a precondition to arbitration/litigation)
- A mediator is selected — either agreed upon or appointed by a provider
- Each side submits a mediation brief — a written summary of their position
- The mediation session — typically a full day, sometimes two
- The mediator shuttles between rooms, carrying offers and helping each side understand weaknesses in their position
- If settlement is reached, it's put in writing and signed that day
Selecting a Mediator
| Provider | Cost | Notes |
|---|---|---|
| AAA (American Arbitration Association) | $1,500–$5,000+ filing + mediator fees | Formal process, experienced construction mediators |
| JAMS | $3,000–$10,000+ per day | Premium mediators, often retired judges |
| Private mediator | $2,000–$7,000 per day | Often former construction attorneys or judges |
| Court-annexed mediation | Low cost or free | Required in many California courts before trial |
Look for a mediator who:
- Has construction industry experience (not just general commercial)
- Understands subcontractor issues specifically
- Is evaluative, not just facilitative — meaning they'll tell each side where their case is weak
- Has a reputation for getting deals done
Preparing for Mediation
Your mediation brief should include:
- Summary of the project and contract
- Timeline of events
- Your claims with supporting documentation
- Legal basis for your position
- Damages calculation with backup
Bring to the mediation:
- A decision-maker with full authority to settle
- All supporting documents (organized in binders or a shared drive)
- A clear understanding of your best case, worst case, and realistic settlement range
- Patience — good mediations take 8–12 hours
Settlement Agreements
If you reach a deal, the mediator will draft a settlement agreement on the spot. Key terms to include:
- Payment amount and timing
- Mutual releases (what claims are being released)
- Confidentiality (if desired)
- What happens if the other side doesn't pay (default provisions)
- Lien releases and bond claim withdrawals
Industry data shows that 80–85% of construction mediations result in settlement. Mediation is almost always cheaper and faster than arbitration or litigation. Even if you don't settle at mediation, the process often narrows the issues enough to make a later resolution easier.
Arbitration
Arbitration is a private trial-like process where an arbitrator (or panel) hears evidence and issues a binding decision. Many construction contracts require it.
Binding vs. Non-Binding
| Type | Effect | Appeal Rights |
|---|---|---|
| Binding | The arbitrator's decision is final and enforceable as a court judgment | Extremely limited — you can only challenge for fraud, corruption, or arbitrator misconduct |
| Non-binding | Advisory — either side can reject the decision and proceed to court | Full — it's essentially a preview |
Most construction contracts require binding arbitration under AAA Construction Industry Rules. Check your contract.
The AAA Construction Arbitration Process
- File a Demand for Arbitration — Submit to AAA with filing fee ($2,000–$10,000+ depending on claim size)
- Arbitrator selection — Each side strikes and ranks arbitrators from AAA's list
- Preliminary hearing — Set the schedule, discovery scope, and hearing dates
- Discovery — More limited than litigation (usually document exchange + limited depositions)
- Hearing — Testimony, cross-examination, exhibits — like a trial, but before an arbitrator instead of a judge
- Post-hearing briefs — Written closing arguments
- Award — The arbitrator issues a written decision, typically within 30 days of the hearing close
Costs: Arbitration Is NOT Always Cheaper
This is one of the biggest misconceptions. Arbitration can be very expensive.
| Cost Item | Typical Range |
|---|---|
| AAA filing fee | $2,000–$10,000+ |
| Arbitrator fees | $400–$700/hour (split between parties) |
| Full arbitration hearing (3–5 days) | $15,000–$40,000 in arbitrator fees alone |
| Attorney fees | $30,000–$150,000+ for a full arbitration |
| Expert witnesses | $10,000–$50,000+ |
| Total for a mid-size dispute | $75,000–$250,000 |
Pros and Cons vs. Litigation
| Factor | Arbitration | Litigation |
|---|---|---|
| Speed | 6–12 months | 18–36+ months |
| Cost | Moderate to high | High to very high |
| Privacy | Private — no public record | Public — all filings are public record |
| Discovery | Limited (often an advantage for subs) | Extensive (expensive but thorough) |
| Appeal rights | Almost none | Full appellate rights |
| Decision-maker | Industry expert (usually) | Judge or jury (may not understand construction) |
| Formality | Less formal | Formal rules of evidence and procedure |
The biggest risk of binding arbitration is that you're stuck with the result. If the arbitrator gets it wrong, you generally cannot appeal. Courts will only vacate an arbitration award for fraud, corruption, evident partiality, or the arbitrator exceeding their authority — not for errors of fact or law.
Litigation
Sometimes you end up in court — either because your contract allows it, the amounts justify it, or you need the full power of the court system (injunctions, jury trials, broad discovery).
The Litigation Process
| Phase | Timeline | What Happens |
|---|---|---|
| Filing | Day 1 | File complaint, serve defendant |
| Answer | 30 days | Defendant responds, may file counterclaims |
| Discovery | 6–18 months | Depositions, document requests, interrogatories, expert reports |
| Motions | Ongoing | Summary judgment, motions to compel, etc. |
| Settlement conference | Court-ordered | Most California courts require at least one |
| Trial | 18–36+ months from filing | 3–10 days for most construction disputes |
| Post-trial motions | 30–60 days after verdict | Motions for new trial, attorney fees |
| Appeal | 1–2+ years after judgment | If either side appeals |
Costs
| Item | Estimated Range |
|---|---|
| Filing fees | $500–$2,000 |
| Attorney fees through trial | $75,000–$500,000+ |
| Expert witnesses | $15,000–$100,000+ |
| Deposition costs | $3,000–$8,000 per deposition |
| Total for a mid-size case | $100,000–$400,000+ |
Jury vs. Bench Trial
- Jury trial — Can be advantageous for subs in payment disputes. Juries tend to sympathize with the party that did the work and didn't get paid.
- Bench trial — Better when the issues are technically complex and you need a decision-maker who understands construction concepts.
Litigation takes years, not months. In busy California courts, getting a trial date 2–3 years out is normal. Factor the time value of money and the distraction cost to your business into your analysis.
Mechanics Liens as Leverage
A mechanics lien is your most powerful tool for getting paid on private projects. It attaches to the property itself and can force a sale to satisfy your claim.
When to File
In California (Civil Code §8412-8416):
| Deadline | Trigger |
|---|---|
| 20-Day Preliminary Notice | Must be served within 20 days of first furnishing labor/materials (protects your right to lien) |
| Lien filing deadline | 90 days after completion of the work of improvement, OR 60 days after a Notice of Completion is recorded |
| Lawsuit to foreclose | 90 days after recording the lien |
These are hard deadlines. Miss the 20-day preliminary notice and you may lose your lien rights entirely. Miss the 90-day lawsuit deadline and your lien expires and is unenforceable. Calendar these dates the day you start the job.
The Lien as a Negotiating Tool
Filing a lien — or even sending a letter stating your intent to file — often gets results fast. Here's why:
- It clouds the title — the owner can't sell or refinance until the lien is resolved
- Lenders care — construction lenders will pressure the GC to resolve lien claims
- It's public — lien recordings are public record and can embarrass the owner or GC
- It triggers urgency — everyone wants it off the title
Strategy: Send a demand letter referencing your lien rights 7–10 days before you intend to file. This gives the other side a chance to pay before you escalate.
Lien Release Bonds
The property owner can post a lien release bond (typically 125–150% of the lien amount in California) to remove the lien from the property. This doesn't kill your claim — it substitutes the bond for the property as security. You then pursue your claim against the bond instead.
The 90-Day Suit Deadline (California)
After recording your mechanics lien, you have 90 days to file a lawsuit to foreclose on the lien. If you don't file within 90 days, the lien expires and becomes unenforceable. This is one of the most commonly missed deadlines in construction law.
Stop Notices
A stop payment notice directs the project owner (or construction lender) to withhold funds from the GC to cover your claim. On public works, where you can't lien government property, stop notices are your primary remedy.
Bonded vs. Unbonded Stop Notices
| Type | Effect | Requirements |
|---|---|---|
| Unbonded | Owner/lender may withhold funds | Just serve the notice — no bond required |
| Bonded | Owner/lender must withhold funds | You must post a bond (typically 125% of claim amount) |
The bonded stop notice is the stronger tool. When you bond a stop notice, the owner or lender has no discretion — they are legally required to withhold funds sufficient to cover your claim.
When to Use Stop Notices
- Public works — Your primary remedy since you can't file a mechanics lien
- Private projects with construction loans — Serve on the lender to freeze undisbursed loan funds
- When the GC is in financial trouble — Freeze funds before they disappear
Timelines (California)
| Action | Deadline |
|---|---|
| Serve stop notice (private) | Before final payment by the lender or owner |
| Serve stop notice (public) | Before the expiration of the 30-day stop payment notice period after filing of the notice of completion, or if no notice of completion, before 90 days after completion |
| File suit to enforce (bonded, public works) | 6 months after acceptance of the project |
A bonded stop notice on a public works project is enormously effective. The public entity must withhold funds, and the GC's payment is frozen until the dispute is resolved. GCs hate stop notices on public jobs because it creates problems with the public entity — which is exactly why they work as leverage.
Payment Bond Claims
On bonded projects (most public works and many large private projects), the GC's payment bond guarantees that subs and suppliers get paid. If the GC doesn't pay you, you go after the surety.
Miller Act (Federal Projects)
| Requirement | Details |
|---|---|
| Applies to | Federal construction contracts over $35,000 |
| Who can claim | Subs and suppliers who dealt directly with the prime, or sub-subs who gave notice |
| Notice required (sub-subs) | Written notice to the prime contractor within 90 days of last furnishing |
| Suit deadline | No earlier than 90 days after last furnishing, no later than 1 year after last furnishing |
| Where to file | Federal district court where the project is located |
Little Miller Act (California — Public Contract Code §7103)
| Requirement | Details |
|---|---|
| Applies to | California state and local public works over $25,000 |
| Who can claim | Any claimant who furnished labor, services, equipment, or materials |
| Preliminary notice | 20-day preliminary notice must have been served (same as lien requirement) |
| Suit deadline | 6 months after the period in which stop payment notices may be filed |
| Where to file | California Superior Court |
How to Pursue a Bond Claim
- Verify a payment bond exists — request a copy from the GC or public entity
- Serve required notices — preliminary notice and written notice to the surety
- Make a formal demand — in writing, to the surety, with supporting documentation
- Wait for response — the surety will investigate (typically 30–60 days)
- File suit if necessary — within the statutory deadline
Sureties don't want to pay claims — it affects the GC's bonding capacity and can trigger an investigation of the GC's financial health. The GC's surety broker will often pressure the GC to resolve claims quickly to protect the bonding relationship. Filing a bond claim (or even notifying the surety) can be a powerful motivator.
Common Types of Construction Disputes
Understanding the type of dispute you're in helps you frame your claim and choose the right resolution path.
Payment Disputes
The most common dispute. You did the work, submitted your pay app, and the GC either doesn't pay, short-pays, or pays late.
Key issues: Disputed quantities, alleged backcharges, retainage withholding, pay-when-paid clauses, flow-down provisions.
Scope Disputes
"That's not in my scope." / "Yes, it is."
Key issues: Ambiguous contract language, conflicts between drawings and specs, custom vs. standard scope, scope gaps that nobody wants to own.
Delay Claims
The project was delayed and you incurred additional costs — extended general conditions, lost productivity, idle equipment, impact to other jobs.
Key issues: Concurrent delays, excusable vs. compensable delays, schedule analysis (CPM), delay notice requirements, no-damage-for-delay clauses.
Change Order Disputes
You performed extra work that was directed or necessitated by changed conditions, but the GC won't approve the change order or disputes the price.
Key issues: Constructive changes, timeliness of COR submission, unit price vs. T&M, markup disputes, overhead and profit on changes.
Back Charge Disputes
The GC deducts amounts from your pay for alleged damage, cleanup, or corrective work — often without proper notice or documentation.
Key issues: Contractual notice requirements for back charges, reasonableness of charges, right to cure, documentation of alleged deficiency.
Termination Disputes
You're terminated — for cause or for convenience — and you dispute the basis or the financial settlement.
Key issues: Was termination proper? Did the GC follow contractual procedures? What are you owed for work completed, materials on site, demobilization costs, and lost profits?
Calculating Your Damages
Winning the dispute only matters if you can prove what you're owed. A well-documented damage claim is essential.
Direct Costs
The actual cost of the work at issue:
- Labor (hours × rates, including burden)
- Materials (invoices, purchase orders)
- Equipment (owned equipment rates or rental invoices)
- Subcontractor costs (if you have lower-tier subs)
Consequential Damages
Costs that flow from the breach but aren't direct costs of the work:
- Extended general conditions (project supervision, temp facilities, insurance)
- Lost productivity on unaffected work (disruption/impact)
- Acceleration costs (overtime to meet compressed schedule)
- Increased material costs due to delay
Lost Profits
If you were wrongfully terminated, you may be entitled to the profit you would have earned on the remaining work. Calculate as contract value minus cost to complete.
Home Office Overhead (Eichleay Formula)
When a project delay prevents you from taking on other work, you can claim a portion of your home office overhead using the Eichleay formula:
1. Contract Billings ÷ Total Billings for Period = Allocation %
2. Allocation % × Total Home Office Overhead = Allocated Overhead
3. Allocated Overhead ÷ Original Contract Days = Daily Rate
4. Daily Rate × Days of Delay = Eichleay Damages
Courts require you to show: (1) there was a government-caused delay, (2) you were on standby, and (3) you were unable to take on other work. It's most commonly used on federal projects but is recognized in California state claims as well.
Interest
- Contractual interest — your contract may specify an interest rate on late payments
- Statutory interest — in California, the legal rate is 10% per annum on contracts (Civil Code §3289) or 7% on judgments (Cal. Const. Art. XV, §1)
- Prompt Payment Act interest — on federal projects, the government must pay interest on late progress payments
Attorney Fees
California follows the "American Rule" — each side pays their own attorney fees unless the contract has an attorney fee provision. Most AIA and ConsensusDocs contracts include mutual attorney fee clauses.
Check your contract. If it has an attorney fee provision, the prevailing party can recover fees — which makes the cost-benefit analysis much more favorable.
Building Your Damage Claim
| Component | Documentation Needed |
|---|---|
| Labor | Timesheets, payroll records, labor burden calculations |
| Materials | Invoices, POs, delivery tickets, cost codes |
| Equipment | Rental invoices or ownership cost calculations (AGC rates) |
| Overhead | Financial statements, tax returns, allocation methodology |
| Profit | Contract value, estimated cost at completion, industry-standard margins |
| Delay | CPM schedule analysis, delay logs, impact narrative |
Protecting Yourself on Future Jobs
The best time to protect yourself is before you sign the contract. Every dispute you go through should teach you something about your next deal.
Contract Review
Read the contract before you sign it. This sounds obvious, but too many subs sign first and read later — when they're in a dispute.
Watch for:
- Pay-when-paid / pay-if-paid clauses — understand the difference and negotiate them out if possible
- No-damage-for-delay clauses — these waive your right to delay damages
- Broad indemnification — don't indemnify the GC for their own negligence
- Short notice deadlines — some contracts require change order notices within 48 hours
- Dispute resolution clauses — know whether you're agreeing to arbitration, what rules apply, and where the venue is
- Termination for convenience — understand what you'll be paid if the GC terminates without cause
- Consequential damages waivers — know what you're giving up
Documentation Habits
Make documentation a daily habit, not a crisis response:
- Daily reports — every single day, no exceptions
- Photos — every single day, multiple angles
- Confirming emails — send them the same day as the conversation
- Change order requests — submit within the contractual timeframe, every time
Change Order Discipline
- Never start extra work without written authorization — or at minimum a confirming email
- Submit CORs within the contractual deadline — late CORs get denied
- Price CORs completely — include overhead, profit, and time impact
- Track COR status weekly — don't let them sit in limbo
Relationship Management
Construction is a relationship business. The GCs you work with today are the GCs who will (or won't) call you for the next job.
- Be firm but professional — protect your rights without burning bridges
- Escalate through proper channels — don't go over someone's head without warning
- Pick your battles — not every $500 dispute is worth a fight
- Build a reputation for fairness — the subs who are known for being reasonable AND well-documented get paid faster
Knowing When to Walk Away
Sometimes the best business decision is to cut your losses:
- The disputed amount is less than your cost to pursue it
- The other party is insolvent or judgment-proof
- The relationship damage outweighs the recovery
- Your time is better spent running your business than fighting a legal battle
- The contract terms are so one-sided that you can't win even if you're right
Many experienced sub owners use this rule of thumb: if the dispute is under $10,000, exhaust informal resolution and then decide whether to lien or move on. If it's over $10,000, consult an attorney before making any decisions. If it's over $100,000, you should already have an attorney involved.
Final Thought
Disputes are an unavoidable part of the construction business. But how you prepare for them — through documentation, contract review, and knowing your rights — determines whether you recover what you're owed or eat the loss. Document everything, know your deadlines, and don't be afraid to use the tools the law gives you. You did the work. You deserve to get paid.