Contract provision addresses trust fund language in contracts
General contractor-drafted subcontracts sometimes contain language requiring subcontractors to hold payments received from the general contractor as a trust fund for the benefit of sub-subcontractors and suppliers. Whenever there is a trust fund requirement, the roofing subcontractor would be liable as a fiduciary to its sub-subcontractors and suppliers. Fiduciary liability varies from state to state, and it can range from criminal penalties to civil penalties (such as punitive damages) or both. This liability is too much for a roofing contractor to assume on a project.
Whenever you see language in a contract requiring payments be held in trust, modify it by removing the trust fund language. Instead, roofing subcontractors are encouraged to use the following contract provision. This provision ensures the general contractor and roofing subcontractor are contractually liable to use payments received for the work to pay the sub-subcontractors and suppliers who have provided labor and material for the work without the threat of any fiduciary liability.
Trust fund language in contract: Payments received by Contractor from Owner for roofing work shall be used to pay roofing subcontractor, and payments received by roofing subcontractor from Contractor shall be used by roofing subcontractor to pay suppliers of roofing materials and any sub-subcontractors of roofing subcontractor.