Last month, a subcontractor called me in a panic. Her supplier had demanded a joint check agreement before shipping $40,000 in materials, and she didn't know what she was signing up for.
Joint check agreements are common in construction, but they're often misunderstood. They can protect you — or trap you — depending on how they're structured and whether you understand the implications.
Let me break down exactly how these agreements work.
What Is a Joint Check Agreement?
A joint check agreement is a three-party arrangement where a GC agrees to issue payment checks made payable to both a subcontractor and the subcontractor's supplier (or lower-tier subcontractor).
The purpose is payment security. The supplier knows they'll receive payment because the check can't be cashed without their endorsement. The GC knows their money is going to pay for materials actually used on the project.
Here's how it works in practice:
1. Subcontractor orders materials from Supplier
2. Supplier requires joint check agreement as condition of credit
3. GC, Subcontractor, and Supplier sign the agreement
4. When GC pays for that work, check is written to "Subcontractor AND Supplier"
5. Both parties must endorse check for it to be deposited
6. Typically, the supplier endorses and gives the check to the subcontractor, who deposits it and pays the supplier their portion
Why Joint Check Agreements Exist
Joint check agreements serve multiple purposes:
Supplier Protection
Suppliers extend credit to subcontractors based on trust. A joint check agreement gives them more security — they know they'll be on the check.
GC Protection
GCs want to ensure their payments actually reach materials and labor, not a subcontractor's unrelated debts. Joint checks help ensure this.
Credit Access
Without joint check arrangements, some subcontractors couldn't get credit at all. The arrangement makes suppliers more willing to extend terms.
Lien Prevention
When suppliers get paid through joint checks, they're less likely to file liens against the project. This protects the owner and GC.
The Subcontractor's Perspective
From a subcontractor's viewpoint, joint check agreements are a mixed bag.
Potential Benefits
**Access to Credit:** You can get materials you couldn't otherwise afford, enabling you to take on larger projects.
**Supplier Confidence:** Suppliers may offer better pricing when they have joint check protection.
**Relationship Building:** Demonstrating you'll honor joint check commitments builds credibility.
Potential Drawbacks
**Cash Flow Complications:** You can't simply deposit the check and pay bills. You need the supplier's endorsement first.
**Processing Delays:** Coordinating endorsements takes time. This can delay your access to funds.
**Reduced Flexibility:** The money is effectively committed to the supplier. You can't redirect it elsewhere even if priorities change.
**Supplier Leverage:** If you have disputes with the supplier, they control whether you can access the funds.
What to Look for in a Joint Check Agreement
Not all joint check agreements are created equal. Before signing, examine these key provisions:
Scope of Coverage
Is the agreement limited to specific invoices, or does it cover all future orders? Limit the scope when possible.
Amount Limitations
Is there a cap on the total dollar amount covered? Caps protect you from open-ended commitments.
Duration
When does the agreement end? Avoid indefinite agreements. Set a clear end date.
GC Obligations
Is the GC actually obligated to issue joint checks, or is it optional? A permissive arrangement offers less security.
Payment Timing
Does the agreement affect when you get paid, or just how the check is made out?
Endorsement Procedures
What happens if the supplier won't endorse the check? Some agreements have dispute resolution procedures.
Assignment Rights
Can the supplier assign their rights under the agreement to a collection agency? This could create problems.
Warning Signs to Watch For
Be cautious if you see these elements:
Unlimited Scope
"All purchases, now and in the future" is too broad. Limit to specific projects or purchase orders.
No Exit Provisions
You should be able to terminate the agreement with reasonable notice.
Supplier Controls Disputes
If the supplier can withhold endorsement over disputed amounts while you can't access any funds, the balance of power is off.
GC Discretion to Reduce Amounts
Some agreements let the GC reduce the supplier's portion based on their judgment of what's owed. This can create conflicts.
Waiver of Lien Rights
Some agreements try to make you waive lien rights in exchange for joint check arrangements. Think carefully before agreeing.
Alternatives to Joint Check Agreements
If you're uncomfortable with joint check terms, consider alternatives:
Progress Payments to Suppliers
Pay suppliers partially as materials arrive, reducing their credit exposure without full joint check commitments.
Escrow Arrangements
Funds are held by a third party and released according to agreed conditions.
Letter of Credit
Your bank guarantees payment to the supplier, giving them security without a joint check.
Material Bonds
A bond guarantees payment for materials, protecting the supplier without altering payment mechanics.
The GC's Rights and Obligations
If you're looking at this from the GC side, understand your position:
Obligation to Issue Joint Checks
If you sign an agreement promising joint checks, you must follow through. Failure to do so can create liability.
Right to Information
You can typically require proof that materials were delivered and used on your project before issuing joint checks.
No Interference with Disputes
You generally shouldn't take sides in subcontractor-supplier disputes. Issue the joint check and let them resolve it.
Protection from Double Payment
Joint check arrangements can help ensure you're not paying for the same materials twice if disputes arise.
What Happens When Things Go Wrong
Joint check situations can get complicated when:
The Subcontractor Goes Bankrupt
The supplier still has rights to the joint check proceeds, but the bankruptcy court may get involved.
Disputes Over Amounts
If the supplier says they're owed $30,000 but the subcontractor says $25,000, both signatures are still required. Someone has to blink.
GC Doesn't Honor Agreement
If the GC issues a check only to the subcontractor despite the agreement, the supplier may have claims against the GC.
Check Bounces
All parties may have claims depending on what happened. Joint check agreements don't guarantee the funds are actually there.
Practical Tips for Subcontractors
Based on my experience, here's how to handle joint check situations:
Negotiate Limits
Push for dollar limits, project limits, and time limits. Don't sign open-ended agreements.
Coordinate Endorsements Early
As soon as you get a joint check, contact the supplier to arrange endorsement. Don't let checks sit.
Maintain Good Supplier Relationships
If you're constantly fighting with suppliers, joint check arrangements become nightmares. Pay your bills, communicate about issues.
Document Everything
Keep records of all orders, deliveries, payments, and communications. You may need them if disputes arise.
Read Before Signing
I know the materials are on the truck waiting. Take the time to read the agreement anyway.
Frequently Asked Questions
Can I deposit a joint check without the supplier's signature?
No. The check is made payable to both parties and requires both endorsements. Attempting to deposit without both signatures is bank fraud.
What if my supplier won't endorse the check?
You'll need to resolve whatever dispute is causing the holdout. If the supplier is being unreasonable, you may need to involve the GC or seek legal advice.
Can a GC require joint check agreements?
Yes, GCs can require joint check arrangements as a condition of subcontracting. It's within their rights to manage payment security.
Do joint checks affect my lien rights?
Generally no, unless the joint check agreement specifically waives lien rights. Read carefully.
Can I avoid joint check requirements?
Sometimes. If you have strong financials and relationships, suppliers may extend credit without joint check requirements.