Why Contractors Need Demand Letters
Contractors routinely face some of the largest unpaid invoices of any profession. The average construction payment dispute involves $15,000-$50,000, and payment delays in the construction industry average 83 days beyond the agreed terms. Whether you are a general contractor dealing with a difficult homeowner or a subcontractor waiting on a GC to release funds, a demand letter is your most important tool before filing a lien or going to court.
Unlike a casual follow-up email, a demand letter carries legal weight. It demonstrates that you made a good-faith effort to resolve the dispute, which courts look for when you file a claim.
Common Payment Disputes for Contractors
Contractor payment disputes tend to be more complex than other industries because of the nature of construction work:
- Retainage disputes: The client withholds 5-10% of the contract value as retainage but refuses to release it after project completion.
- Change order disagreements: Additional work was performed at the client's request, but they refuse to pay for changes they verbally approved.
- Punch list hostage: The client withholds final payment over minor punch list items while occupying and using the completed space.
- Disputed workmanship: The client claims defects to avoid paying, sometimes after months of using the completed work without complaint.
- Pay-when-paid chains: A general contractor refuses to pay subcontractors because the owner has not paid the GC.
What to Include in a Contractor Demand Letter
Contract and Scope Documentation
Reference your original contract, including the contract sum, payment schedule, and completion date. If there were change orders, list each one with the date it was approved (verbally or in writing) and the additional amount.
Work Completion Evidence
Include references to dated photos, inspection reports, and any certificates of completion or occupancy. If the client is already using the space or structure you built, note that fact specifically, as it undermines any claim that the work was not completed.
Payment History and Outstanding Balance
Detail every payment received, including draws, progress payments, and deposits. State the remaining balance owed, including retainage if applicable. If your contract includes late payment penalties or interest (typically 1-2% per month in construction contracts), calculate the current total.
Lien Rights Notice
This is critical for contractors. If you have not yet filed a mechanic's lien, your demand letter should note that you reserve the right to do so. In most states, you have 60-90 days from the last date of work to file a lien. The threat of a lien on real property is one of the most powerful motivators for payment in construction disputes.
Payment Deadline
Give a deadline of 10-15 business days. For larger amounts, 20 business days is reasonable. Be specific about the date.
Timeline Expectations
- Day 1: Send demand letter via certified mail and email
- Days 1-7: Check your state's mechanic's lien filing deadline and prepare the lien paperwork in parallel
- Days 10-15: Initial deadline expires
- Days 15-20: Send final notice if no response
- Day 30: File mechanic's lien if applicable and prepare small claims or civil court filing
Contractor disputes often take longer to resolve than other industries because of the amounts involved and the complexity of construction agreements. Budget 30-60 days for the demand letter process.
When to Escalate Beyond the Demand Letter
Contractors have more legal tools than most professions:
- Mechanic's lien: File a lien on the property where work was performed. This clouds the title and prevents the owner from selling or refinancing until the dispute is resolved. Filing fees are typically $50-$150.
- Small claims court: For amounts under your state's limit ($5,000-$25,000 depending on the state).
- Civil court: For larger amounts, you may need to file in civil court, which generally requires an attorney.
- Contractor licensing board complaint: If the dispute is with a licensed general contractor, filing a complaint with your state's licensing board can be effective leverage.
- Construction bond claim: If the project required a payment bond, you can make a claim against the bond.
Protecting Yourself on Future Jobs
- Always use written contracts with clear payment schedules and late payment penalties
- Require deposits of 25-50% before starting work
- Document change orders in writing before performing additional work
- Send preliminary lien notices where required by your state (this preserves your lien rights)
- Progress bill regularly rather than waiting until project completion for a single invoice