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Understanding the Rights of General Contractors and Subcontractors in Michigan

Construction Lawyer Ann Arbor

In today’s challenging and competitive economy, it’s more important than ever that general contractors and subcontractors know and understand their rights and responsibilities to ensure successful projects. The following are issues that any successful general contractor and subcontractor should review:

  • What’s the structure of your company (corporation or limited liability company) and are the appropriate governing documents prepared and/or updated, such as operating agreements and by-laws?
  • Have you filed yearly annual reports with the State of Michigan and designated a registered agent with the State?
  • Are you and your company appropriately licensed? For residential builders, the company must be licensed through a qualifying officer.
  • For residential projects, are you performing the work of a written contract with the homeowner that clearly describes the scope of work and price that also contains your residential builders license number and certain other language required by the Michigan Construction Lien Act? 
  • If you don’t have a direct contract with the project owner, are you providing the owner with a notice of furnishing within 20 days of commencing work to protect your lien rights?
  • Are you treating funds paid to you by the owner for the products and services provided under the construction contracts for the project as trust funds? In Michigan, private construction contracts are governed by the Michigan Builders Trust Fund Act (MBTFA). This Act was passed in 1931 as a depression-era measure to afford additional protection to subcontractors and materialmen by outlawing contractors from juggling funds between unrelated projects. 
    • The current statute states that money paid for a construction project “shall be considered by this act to be a trust fund, for the benefit of the person making the payment, contractors, laborers, subcontractors, or materialmen.”    
    • The courts have ruled that a trust is also imposed as to anticipated future costs of a particular project.
    • Under the MBTFA, appropriation (i.e., use) by the contractor of money received before using those funds for the project and “payment by him of all moneys due or so to become due laborers, subcontractors, materialmen or others entitled to payment” is evidence of intent to defraud.
    • Corporate employees or officials can be criminally or civilly liable under the MBTFA for their personal participation in the violation of the Act. 

If you need have questions or need advice or help regarding your construction business or project, please contact Matthew Jane, construction lawyer in Ann Arbor at Pear Serling Eggan & Daniels, P.C. Matthew Jane practices in the areas of construction law and litigation, business and real estate law and litigation, and municipal law. Please contact us at 734-665-4441 or fill out our contact form to schedule an initial consultation. 

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