Direct Payments to Lower-Tier Contractors and Trust Fund Obligations

Reviewed September 7, 2026.

Paying a subcontractor’s vendors directly is not necessarily a trust diversion. The recipients, amounts, purpose and treatment under the contract must still be examined.

In Metro Foundation Contractors, Inc. v. Marco Martelli Associates, Inc., 78 A.D.3d 594 (2010), the First Department explained that payments to the claimant’s subcontractors and vendors could be proper trust payments because they were beneficiaries, assuming the correct amounts were paid. Factual disputes remained about performance and the payments, so the claimant was not entitled to summary judgment.

The Prompt Payment Act did not turn disputed part performance into automatic entitlement to judgment. The decision did not authorize a contractor to invent offsets, overpay a vendor or ignore notice and payment obligations.

Document the payment and credit

Identify the beneficiary and project debt, obtain invoices and payment proof, and document any agreement authorizing direct or joint payment. Reconcile the amount against the subcontract balance and obtain appropriately limited acknowledgments or releases. Avoid double-counting an expense as both a payment and a separate backcharge.

Lien Law § 71 addresses trust purposes. Contract terms and the applicable Prompt Payment Act requirements must be considered separately, including timely approval or disapproval where required.

Kushnick Pallaci PLLC assists clients throughout New York with construction trust fund disputes. Contact 631-752-7100 or vtp@kushnicklaw.com.

Attorney Advertising. General information, not legal advice.