What Penalties Do You Face as a Contractor If You Don't Pay Your Subs?

Colorado’s trust fund statute requires contractors or subcontractors who receive funds for a construction project to hold those funds in trust to pay any subcontractors or laborers who have provided labor or materials for the project. C.R.S. § 38-22-127. Failure to pay the subs or laborers can have very serious consequences for the contractors. For example, violations of the trust fund statute are treated as theft, which can have criminal penalties. C.R.S. § 18-4-401. Depending upon how much money was stolen, the penalty will either be misdemeanor or felony. Punishments can even include jail time, and the contractor may also be held personally liable. When violations are found, contractors can be liable for treble damages (three times the amount of actual damages), plus attorneys’ fees and costs. C.R.S. § 18-4-405.

Because there are such serious implications, it is important for contractors to do everything possible to avoid these violations. First and foremost, it is important for contractors to keep good records that show that all funds received for a project are allocated to the appropriate subcontractor or laborer. The statute itself also provides some guidance to contractors:

Every contractor or subcontractor shall maintain separate records of account for each project or contract, but nothing contained in this section shall be construed as requiring a contractor or subcontractor to deposit trust funds from a single project in a separate bank account solely for that project so long as trust funds are not expended in a manner prohibited by this section.

C.R.S. § 38-22-127(4).

In addition, a contractor is not required to pay subs or laborers for their work on the project if the contractor has a valid setoff. Such setoffs can include any work that the contractor was required to do to correct any mistakes by the subcontractors.

Additionally, if a subcontractor files a lien for an excessive amount against a contractor, then the subcontractor loses their entire right to any portion of the lien, and must pay the contractor for costs and attorneys’ fees involved in defending against the lien.

For more information, please contact a Longmont construction law attorney at Jorgensen, Brownell & Pepin, P.C. We can be reached at (720) 491-3117, or click here to fill out an online consultation form.