How to Handle a Construction Payment Dispute

File before the deadline. Lien deadlines are statutory and inflexible — missing them eliminates the right regardless of the claim’s merit. See Construction Lien Rights for state-specific deadlines and filing procedures.

What construction time tracking app records do for lien claims:

The lien amount must be supported by evidence of labor performed. GPS-verified time records showing:

• Every worker who was on the project
• The exact dates they were present
• Total hours and corresponding labor cost

…create the evidentiary foundation that the claimed labor was actually performed at the claimed location during the claimed period. An owner who disputes the lien amount faces digital records they must specifically refute.

Lien + stop work together: Filing a lien while simultaneously stopping work maximizes pressure on the owner. The project stops, the title is encumbered, and the owner faces both operational and financial consequences of non-payment.A construction delivery tracking case study shows how organized coordination and delivery records can support better accountability on complex construction workflows.

Step 5: Bond Claim

On bonded projects — federally funded projects (Miller Act), many public projects, and some large private projects — the payment bond provides an alternative payment source when the owner or GC can’t or won’t pay.

Bond claims have their own deadlines — typically 90 days from last furnishing under the Miller Act for federal projects; state bond statutes vary. Bond claims require written notice to the principal (the GC, on a sub’s claim) and the surety.

See Construction Bonds Guide for the complete bond claim procedure. File a bond claim whenever a project is bonded and payment stops — it runs parallel to the lien process, not instead of it.

Prompt Payment Laws

Key provisions vary by state:`

Most states have prompt payment laws that:

• Set maximum payment timelines (owner to GC, GC to sub)
• Require payment of undisputed amounts even when other amounts are disputed
• Impose interest (often 1–2% per month) on late payments
• May allow the contractor to stop work after specified non-payment periods
• Some states impose attorney fee shifting on the party who wrongfully withholds payment
• California: Owner must pay GC within 30 days; GC must pay sub within 7 days of receipt. Interest at 2%/month on late payments.
• Texas: Owner to GC within 35 days; GC to sub within 7 days. Interest at 1.5%/month.
• New York: Owner to GC within 30 days (public) / per contract (private); interest and attorney fees possible.
• Federal projects: Prompt Payment Act requires payment within 14 days of invoice approval.

Know your state’s prompt payment law before drafting the demand letter — citing the applicable statute and statutory interest rate strengthens the demand and demonstrates you know your rights.Before a payment issue turns into a full dispute, contractors can start a free contractor account to begin organizing jobsite records, field communication, and project documentation in one place.

Dispute Resolution: Mediation, Arbitration, Litigation

When the above steps don’t produce payment, the contract specifies the dispute resolution process.

Step 1: Review the Contract

AIA contracts require mediation before arbitration. Some custom contracts require negotiation before mediation. The sequence matters — skipping a required step may waive rights or procedural protections.

Most commercial construction contracts specify arbitration as the final dispute resolution method — not litigation. Arbitration is typically faster and cheaper than court but the decision is usually final with limited appeal rights.

Prepare for mediation with documentation:

Mediation

A neutral mediator facilitates negotiation between the parties — they don’t decide the case. Mediation is confidential and non-binding. Success rate in construction disputes is high (60–70%) because both parties understand the cost and uncertainty of proceeding to arbitration or litigation.

• Complete payment history — what was billed, what was paid, what’s outstanding
• Contract and all change orders
• Daily reports from the disputed period
• Time tracking records showing labor performed
• Photographs of work completed
• Lien notices filed

The mediator’s job is to find common ground. Parties with better documentation have more ground to stand on.

AAA Construction Arbitration:

Arbitration

If mediation fails, most construction contracts proceed to binding arbitration — typically administered by the American Arbitration Association (AAA) under its construction rules.

• Claims under $75,000: Desk arbitration (no hearing) — decided on paper submissions
• Claims $75,000-$1M: One arbitrator, simplified hearing procedures
• Claims over $1M: Three-arbitrator panel, full evidentiary hearing

Filing fees are significant — $1,875 for a $75,000 claim, scaling up. Both parties typically pay their own attorney fees (no fee-shifting unless the contract or statute provides for it).

Time tracking records in arbitration: The arbitrator evaluates the evidence presented by both parties. GPS-verified contractor time tracking software records are presented as exhibits — they carry significant weight because they’re contemporaneous, digital, and location-verified. An owner’s attorney who challenges a contractor’s labor claim faces an arbitrator who can see exactly who was on site, when, and for how many hours.

Litigation

When the contract doesn’t require arbitration, or when the dispute involves fraud or criminal conduct, court litigation is an option. Construction litigation is expensive — attorney fees of $50,000-$300,000 are common on complex disputes. Reserve litigation for large claims or when arbitration isn’t available.

Owner Insolvency: What to Do Immediately

When an owner’s financial situation collapses — lender pulls funding, development entity goes bankrupt, owner stops communicating — the contractor’s response must be immediate:

Stop all new credit extension. Don’t continue purchasing materials or booking labor for a project where payment is doubtful. Each day of work is additional unpaid exposure.

File a lien immediately — don’t wait for the demand letter process. When insolvency is suspected, lien deadlines are more urgent than ever. An unfiled lien against a bankrupt owner is a general creditor claim worth cents on the dollar. A recorded lien is a secured claim against the property.

Preserve all records. In bankruptcy proceedings, claims must be documented. Construction employee time tracking app exports, material invoices, and daily reports are the evidence supporting the claim value.

Consult a construction attorney immediately. Bankruptcy proceedings have automatic stays that may affect lien enforcement. An attorney experienced in construction insolvency navigates these rules and protects the contractor’s position.

Common Payment Dispute Mistakes

Not sending a formal demand letter. A phone call is not a demand. A formal written demand starts the clock on the owner’s response obligation, creates a documented record, and signals seriousness. Contractors who skip this step often find the dispute lingering for months because there’s no formal record of the contractor’s position.

Missing lien deadlines while waiting for the owner to respond. Lien deadlines don’t extend because negotiations are ongoing. File the lien by the deadline regardless of negotiation status — the lien can always be released if the dispute resolves.

Continuing to work without payment. A contractor who keeps working while an owner is three months behind in payments is accumulating unpaid exposure on an owner who has already demonstrated they won’t pay. Stop work is both a legal right and a financial necessity.

Not separating undisputed from disputed amounts. An owner who disputes a $15,000 change order isn’t entitled to withhold $120,000 in undisputed base contract payments. Demand payment of undisputed amounts immediately — prompt payment laws often require this.

Inadequate documentation going into the dispute. Trying to reconstruct project records months after they were created is expensive and less credible than contemporaneous records. A contractor without construction time tracking for workers records, daily reports, and signed T&M tickets is arguing against an owner who can simply deny everything.

Mixing claims. Combining a payment dispute with change order claims, delay claims, and defect counterclaims in a single demand creates confusion and gives the owner more to respond to. Lead with the clearest, best-documented claim — typically unpaid approved contract work.

Payment due date passes without payment:

If your team wants a better way to organize field documentation, payment backup, and project communication, try TaskTag for 30 days free and start building stronger records before the next payment dispute happens.

Formal demand:

Payment Dispute Response Checklist

If demand deadline passes:

• [ ] Confirm payment was properly submitted — correct format, address, contact
• [ ] Direct phone call to owner — document the conversation by email same day
• [ ] Wait 7 days maximum — then proceed to formal demand

Evidence assembled:

• [ ] Demand letter sent certified mail AND email — document delivery
• [ ] Demand specifies exact amount, basis, and deadline
• [ ] State prompt payment law cited if applicable
• [ ] Copy to attorney if amount is significant
• [ ] Stop work notice prepared — per contract requirements
• [ ] Lien deadline calculated and calendared — do not let this pass
• [ ] Lien filed if deadline approaching — regardless of negotiation status
• [ ] Bond claim filed if project is bonded
• [ ] Attorney engaged
• [ ] Payment history — what was billed, what was paid, what’s outstanding
• [ ] Time tracking records exported — GPS-verified hours by date and cost code
• [ ] Signed T&M tickets for change order work
• [ ] Daily reports for disputed period
• [ ] Photographs of completed work
• [ ] All change order documentation

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Originally published at https://blog.tasktag.com on August 15, 2026.