Colorado’s trust fund statute requires contractors or subcontractors
who receive funds for a construction project to hold those funds in trust
to pay any subcontractors or laborers who have provided labor or materials
for the project. C.R.S. § 38-22-127. Failure to pay the subs or laborers
can have very serious consequences for the contractors. For example, violations
of the trust fund statute are treated as theft, which can have criminal
penalties. C.R.S. § 18-4-401. Depending upon how much money was stolen,
the penalty will either be misdemeanor or felony. Punishments can even
include jail time, and the contractor may also be held personally liable.
When violations are found, contractors can be liable for treble damages
(three times the amount of actual damages), plus attorneys’ fees
and costs. C.R.S. § 18-4-405.
Because there are such serious implications, it is important for contractors
to do everything possible to avoid these violations. First and foremost,
it is important for contractors to keep good records that show that all
funds received for a project are allocated to the appropriate subcontractor
or laborer. The statute itself also provides some guidance to contractors:
Every contractor or subcontractor shall maintain separate records of account
for each project or contract, but nothing contained in this section shall
be construed as requiring a contractor or subcontractor to deposit trust
funds from a single project in a separate bank account solely for that
project so long as trust funds are not expended in a manner prohibited
by this section.
C.R.S. § 38-22-127(4).
In addition, a contractor is not required to pay subs or laborers for their
work on the project if the contractor has a valid setoff. Such setoffs
can include any work that the contractor was required to do to correct
any mistakes by the subcontractors.
Additionally, if a subcontractor files a lien for an excessive amount against
a contractor, then the subcontractor loses their entire right to any portion
of the lien, and must pay the contractor for costs and attorneys’
fees involved in defending against the lien.
For more information, please contact a Longmont construction law attorney
at Jorgensen, Brownell & Pepin, P.C. We can be reached at (720) 809-8310,
or click here to
fill out an online consultation form.