@Andrew S. We ran into this issue during our own personal remodel / new construction project. Fortunately for us, and the subs, we were notified by certified mail by the GC's major supplier that he hadn't paid, and therefore the second supply order was delayed. He gave us every excuse in the book for the delay until we had this proof. We had no idea our GC (who was recommended by and worked with our mortgage broker) didn't pay them with the first draw until we received the notice Lesson #1: recommendations mean nothing without a solid performance track record. Lesson #2: Never assume your draws are being directed to your subs. Some contractors borrow from Peter to pay Paul when they get into trouble with low-ball estimates on multiple projects and hope they can catch up later. And, as @Karen Margrave states - always control the payout of money, especially if direct to the GC. We were lucky and had our title company making payments and enforcing inspections, so there was an extra layer of protection before the final draw was made.
In the end, we had to pay our attorney about $6k to step in, fire our GC for breach of contract, and take over final payments totaling $50k to all the subs via our title company and collect lien waivers. Fortunately, our atty was also on the board of the local builders association and knew the laws (a great resource). We needed to hire a new contractor to finish, as our GC attempted to bully us into signing off on the final draw without completing work, which would constitute contractor theft. This was the start of subsequent judgments against this contractor as he couldn't pay his subs. Very unfortunate for all involved.
Close attention to detail is key. Question everything that's not on track. The sad thing is, most people would never know these things can happen - we were naive as well, and trusted this person until we were burned. Huge lessons learned! I could write a book! (oh, wait - I think I just did). Sorry for the novel! Hope it helps you, though.
