If you supply construction materials and/or equipment then you likely have encountered a joint check agreement. For those that have not yet encountered this arrangement, a joint check agreement is a credit facility frequently used to help subcontractors with unestablished credit obtain supplies and services on credit from a supply house. For example, if you are a supplier, you may require a subcontractor and the subcontractor’s general contractor to sign a joint check agreement whereby the general contractor agrees to write checks jointly to you and the subcontractor. In theory, a joint check agreement benefits all three parties: the general contractor minimizes the risk of nonpayment to lower tiered parties, and thus lien claims; the subcontractor may purchase supplies and materials on credit; and the supplier is somewhat further protected against the subcontractor absconding with the payment from the general contractor.
A joint check agreement is better than nothing but it is no substitute for lien and bond rights. A supplier should preserve its lien and bond rights regardless of whether the supplier has a joint check agreement with the general contractor. Nevertheless, joint check agreements can be useful. They can allow a supplier to provide materials on credit to a subcontractor who normally would not be approved to purchase materials on credit. But bear in mind, there is no standard form. A joint check agreement is not defined or limited by statute. Consequently, parties have the freedom to put self serving terms and conditions in the joint check agreement. For example, a general contractor may use it as a means to impose onerous terms on a supplier (e.g. lien release and/or waiver language, indemnities, pay if paid clauses). Suppliers should always draft the joint check agreement to minimize the inclusion of any extraneous and unfavorable terms.
You should contact your attorney to help draft a joint check agreement form so you have it at your disposal when the need arises. If you must sign a general contractor’s form, read it carefully and watch out for unfavorable provisions.