Joint check agreements, or joint pay agreements, are a common credit management device, and can be an excellent tool to make sure that you get paid when your customer does. In most cases, however, they do not create a situation where you can seek money directly from the general contractor. In order to use them effectively, it is important to know what they can do, and what they cannot.
A joint check agreement is an agreement among at least three parties – the creditor supplier, the debtor customer, and also the customer’s buyer (often the general contractor on a project). The usual joint check agreement requires a general contractor to pay for your labor or materials by issuing a check payable jointly to you and to your customer. This ensures that money that rightfully should flow to you is not used by your customer to pay bills other than yours. Often, the check will be delivered first to your customer, who will then endorse it and deliver it to you. When it works, the joint check agreement benefits everyone – the supplier knows that when its customer is paid, it will be as well; the general contractor knows that lower-tier subs are being paid what they are owed; and the supplier’s customer avoids any claim that it has not paid what the sub is owed.
The major issue however, and one that is often overlooked, is that that the joint check agreement only helps you if the general contractor actually writes the check. If the general contractor claims that it does not owe any money to your customer, you have no rights directly against the general contractor under most joint check agreements. That brings us to what a joint check agreement is not – in most cases, it is not a guaranty by the general contractor, at least not without specific language obligating the general contractor to pay its subcontractor’s debts. Of course, if the general contractor agrees to such language, that is additional security for you, but most general contractors will balk at such a request.
In sum, joint check agreements are a useful, and potentially powerful tool, but it is important to remember their limitations and understand exactly what they can and cannot do. Of course, each agreement is different, so please feel free to contact us with any questions about specific agreements.