How SMBs Can Face Lawsuits for Unpaid Construction Work

Small and mid-sized businesses (SMBs) often find themselves vulnerable to disputes over unpaid construction work. When payments break down, disputes over unpaid or unsatisfactory work can escalate quickly, leading to liens, lawsuits, or arbitration. Whether you are a business owner managing a build-out, renovation, or routine facility upgrades, understanding how construction payment laws work, and how to protect your business from liability, is essential.

Construction Liens: What SMBs Need to Know

One of the biggest legal risks in any construction project is the construction lien, also known as a mechanic’s lien. Under Florida’s Construction Lien Law (Chapter 713, Florida Statutes), contractors, subcontractors, and suppliers who have not been paid can file a lien against the property. This can happen even if you have paid your general contractor in full—if the general contractor fails to pay a subcontractor or supplier, you may still be on the hook.

Liens work like mortgages—they cloud the property’s title and can halt refinancing, delay sales, or otherwise freeze up business operations. A lien may remain valid for up to a year unless it is resolved or challenged in court. Disputes often arise when lienors file without following the law’s technical requirements, which include specific notices, deadlines, and documentation. For example, anyone not in direct contract with the property owner must serve a Notice to Owner (NTO) within 45 days of first supplying labor or materials. Missing this deadline usually means losing lien rights entirely.

For more on construction liens, see our article: How do Construction Liens Impact a Commercial Landlord in Florida?

Notices That Can Make or Break Your Protection

Florida law places heavy emphasis on pre-lien documentation. Before construction begins, the property owner—or tenant, if the lease requires the work—should record a Notice of Commencement (NOC). This publicly identifies the job site, contractor, and other key parties, and starts the clock on lien priority.

Equally important is the Notice to Owner, which suppliers and subcontractors must serve to protect their right to file a lien. It alerts the owner to their involvement and allows the owner to make sure those parties are paid. If an SMB owner receives one of these notices from a subcontractor or supplier they did not know about, it is a signal to investigate immediately.

To reduce the risk of lien exposure, you should require lien waivers or releases from contractors, subcontractors, and material suppliers at each payment stage—and particularly before final payment. Florida law allows owners to request a Contractor’s Final Payment Affidavit, which confirms everyone has been paid and lists any outstanding amounts.

Our article, What Construction Professionals Need to Know When Performing Work on Commercial Real Estate, delves into these notices in greater depth. 

“First Furnishing” and the Importance of Timing

A key concept in lien law is the first furnishing, or the date a party first provides labor or materials. This date starts the 45-day clock for serving the Notice to Owner. For instance, delivery of materials to a job site—even if they sit unused—can trigger this deadline. Florida courts apply the rule strictly: being one day late can invalidate a lien. (See Florida Construction Liens: First Furnishing. What Does it Mean?, for more).

Similarly, lien claims must be recorded no later than 90 days after the final furnishing, which is the last day labor or materials were provided. This deadline is interpreted through the Aronson test, which requires the work to be done in good faith, within a reasonable time, and pursuant to the contract. (See Florida Construction Liens: Final Furnishing – What Does it Mean?). 

Conditional Payment Provisions: “Pay-When-Paid” and “Pay-If-Paid”

In construction contracts, SMBs may encounter terms like “pay when paid” or “pay if paid.” While they sound similar, their legal effect is very different. In Florida, “pay when paid” is usually seen as a timing mechanism—you still owe payment to the subcontractor, even if the general contractor has not been paid by the property owner. On the other hand, “pay if paid” shifts the risk of nonpayment downstream. Courts scrutinize these clauses carefully, and for a “pay if paid” provision to be enforceable, it must contain clear and explicit language that makes payment truly conditional.

Understanding how these clauses work—and ensuring they are clearly written in your contracts—can help SMBs avoid being blindsided by liability for unpaid work. (See our article Enforceability of Contingent Payment Provisions in Construction Contracts).

The Problem of Double Payment

One of the toughest outcomes of a construction payment dispute is the possibility of double payment. A SMB might pay their contractor in full, only to face a lien from an unpaid subcontractor or supplier. To prevent this, maintain a list of all subcontractors and suppliers on your project. Request lien waivers with each payment and always secure a final affidavit before releasing final funds. Be cautious of contractors who delay or resist providing this documentation—it could be a red flag that payments to subcontractors are being withheld.

Protecting Yourself with Strong Contracts

Many disputes stem from poorly written or vague contracts. A good construction contract should define the payment schedule clearly, including milestones for progress payments and a final payment trigger. It should outline lien waiver requirements, describe how change orders are handled, and specify whether mediation or arbitration will be used to resolve disputes.

Including an attorney’s fees clause is also important. While Florida’s lien statute allows for attorney’s fees in some lien enforcement actions, it is better to spell out these rights explicitly—especially for broader disputes or claims that fall outside of lien litigation.

Alternatives to Litigation: Arbitration and Mediation

When disputes arise, SMBs should consider resolving them through mediation or arbitration, both of which can be faster and more cost-effective than going to court. However, for liens specifically, Florida law requires the claimant to initiate the process in court—even if there is an arbitration clause in the contract. That means a contractor who only files for arbitration without also initiating a court action may see their lien dismissed, as was the case in Snell v. Mott’s. 

Insurance, Bonds, and Risk Mitigation

Another layer of protection for SMBs comes from verifying that the contractor carries appropriate insurance and payment bonds. A payment bond guarantees that subcontractors and suppliers will be paid if the contractor defaults. If a valid bond is in place, it can replace the need for a lien and provide a clearer path to resolving disputes.

Conclusion: Take Proactive Legal Steps to Protect Your Business

Disputes over unpaid construction work can expose SMBs to serious risks. Florida’s construction lien laws are strong—but also highly technical and unforgiving. Missing a notice deadline or overlooking a contract clause can lead to costly legal battles or even double payment for the same work.

To protect your business, it is crucial to involve experienced legal counsel early—before contracts are signed or issues arise. An experienced construction attorney can help you draft stronger agreements, enforce lien waiver protocols, and respond quickly and effectively to payment disputes or lien threats.At Jimerson Birr, our team understands the complexities of Florida’s construction laws and works closely with businesses to minimize risk and resolve conflicts efficiently. If your business is facing a construction dispute—or wants to avoid one—contact us to schedule a consultation.