Notice of Intent to Stop Work – A Remedy or an Obligation

It is often asked whether or not a contractor or supplier may stop work on a project when they have not received payment.  The general answer is “yes”, however, what steps you must take prior to stopping work is subject of debate.  On private works of improvement NRS 624.626 sets forth the grounds and procedure for stopping work when a higher-tiered contractor fails to make payment to a lower-tiered contractor.  If a higher-tiered contractor fails to timely make payment to a lower-tiered contractor, the lower-tiered contractor may stop work “until payment is received if the lower-tiered subcontractor gives written notice to the higher-tiered contractor at least 10 days before stopping work.”  If payment is received within the ten (10) day timeframe the lower-tiered contractor must resume work.

In the event that payment is not received after work is stopped, a lower-tiered contractor may terminate its contract with the higher-tiered contract “by giving written notice of the termination to the higher-tiered contractor after stopping work but at least 15 days before the termination of the agreement.”  It should be noted that you may not terminate a contract if the reason for the non-payment is due to the existence of a “pay if paid” or “pay when paid” clause.  You may, however, still stop work.  Thus, questions arise in Nevada regarding the extent to which such clauses are enforceable.

While the two provisions above appear to grant rights to unpaid contractors a closer look reveals that the provisions may actually take rights away from unpaid contractors.   As seen in the language of Nevada statutes, prior to stopping work or terminating an agreement, the unpaid contractor is required to provide written notice.  Prior to the enactment of the Nevada Prompt Pay Act, which is where the notice provisions are found, no such notice was required.  Instead, general contract law applied in that if a one party breaches a contract (i.e. – nonpayment without justification) then the other party (unpaid contractor) is relieved of their obligation to perform under the agreement.   Now, Nevada law could be read to have eliminated this remedy and require at least 25 days worth of notices prior to an unpaid contractor being permitted to terminate its contract.  To muddy the waters further, Nevada law provides:

The right of a lower-tiered subcontractor to stop work or terminate an agreement pursuant to this section is in addition to all other rights that the lower-tiered subcontractor may have at law or in equity and does not impair or affect the right of a lower-tiered subcontractor to maintain a civil action or to submit any controversy arising under the agreement to arbitration.

Thus, the law appears to impose new duties on unpaid contractors, but simultaneously appears to preserve all rights which previously existed, including the right to terminate a contract upon non-payment.  This has led to inconsistent interpretations of the law and will, eventually, have to be resolved either through the court system or further legislative action.

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