Can a Trust Fund Help You Get Paid?

Kegler Brown Construction Newsletter

Some states are known as "trust fund" states because they contain statutes requiring a contractor to pay funds downstream once project funds are received or face personal liability or other sanctions. Sometimes those providing labor or material are successful in securing "trust fund" contract language requiring the customer to hold funds "in trust" for the benefit of the sub or supplier until paid.

In these difficult economic times with tightening credit, subcontractors and suppliers may want to consider utilizing trust fund contract language when they have leverage to do so. This would greatly increase their chances for payment.

A recent case from Wisconsin dealt with whether a contractor, facing a shortfall in project funds, could pay one subcontractor in full or had to pay all subs proportionately. The Wisconsin Supreme Court ruled that the trust fund statute was violated because, when faced with a deficiency, the contractor was obligated to pay all subs their proportionate share. State v. Keyes, 2008 WI 54, 750 N.W. 2d 30 (2008).