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 less effective than just about everything else (e.g., lien and bond rights and personal and/or corporate guarantees). A joint check agreement may help lower the risk of nonpayment for suppliers. But bear in mind, there is no standard form and a joint check agreement is not defined or limited by statute. Thus, 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, and other terms that reduce a supplier’s rights, but increase its obligations). For suppliers, you should always draft the joint check agreement to minimize the inclusion of such 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 – and unrelated – provisions.