Chipping Away at the Armor of Pay-if-Paid Provisions

In tough economic times it is not surprising to see an increase in subcontractor claims related to unpaid invoices or applications for payment.  It is also not surprising that prime contractors increasingly armor plate their subcontracts to shield against subcontractor payment claims when the payment claim arises as the result of the project owner’s failure to pay the contractor.  Thus, an increasingly important issue in complex, multi-tiered, construction contracts involves the question regarding which party ultimately bears the risk of loss when a project owner becomes insolvent or otherwise defaults in its payment obligations to the prime contractor.  To shield themselves and shift to their subcontractors the risk of owner nonpayment, prime contractors increasingly use pay-if-paid provisions in their subcontracts instead of pay-when-paid provisions.  Thus, it is critically important to recognize and understand the significant difference between a pay-when-paid and a pay-if-paid provision.  It is equally important to recognize when there are chinks in the armor of a pay-if-paid provision subjecting the provision’s enforceability to a potentially fatal attack.

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CLIENT ALERT: Design Professionals Receive Limited Statutory Immunity

On April 24, 2013 Governor Scott signed Senate Bill 286 into law creating section 558.0035, Florida Statutes. This new law grants individual design professionals employed by a business entity or an agent of the entity immunity from liability for economic damages resulting from negligence occurring within the course and scope of a professional services contract under the following conditions: (a) the contract is made between the business entity and a claimant or another entity for the provision of services to the claimant; (b) the contract does not name an individual employee or agent as a party to the contract; (c) the contract prominently states that an individual employee or agent may not be held individually liable for negligence; (d) the business entity maintains any professional liability insurance required under the contract; and (e) any damages are solely economic in nature and do not extend to persons or property not subject to the contract. The law takes effect on July 1, 2013 and does not state that it is retroactive. Read More ›

Subcontractor Terminations on Design-Build Projects

Owners like design-build construction because it places more risk on the design-builder, which accepts the responsibility for both design and construction. Design-builders have success when they understand these risks, assemble a knowledgeable team, and stick to projects in their comfort zone. Contractors run into trouble in design-build when they chase unfamiliar work, team up with unfamiliar designers, or use unproven subcontractors. Read More ›

Garfield and the Puzzling Negotiation That Resolved a Labor Inefficiency Claim

Lasso in hand, Garfield stood stoically up against the magnificent Saguaro Cactus, its five arms towering above him.  The scorching desert sun beat down on him.  Garfield peered out from beneath the brim of his cowboy hat, which was tipped forward covering the oversized white of his left eye.  The two-inch spines, which were clustered along the ribs of the Saguaro Cactus, brushed up against Garfield’s orange and black-striped fur.  His long, furry tail flickered in obvious agitation.  Garfield, of course, was a cat.  He had never been called upon to help resolve a contentious construction dispute.  Joe, however, needed him now.

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Online Banking and Cybertheft - Who Bears the Loss?

Introduction

Many contractors enjoy the advantages of online banking. Like companies in other industries, contractors use e-banking to make payroll payments and to pay other obligations. They appreciate the ease, speed, and paperless efficiency of electronically transferring funds from the business’s bank account to other accounts. Cyberthieves also appreciate the ease, speed, and efficiency of electronic funds transfers. Recent news stories have called attention to the persistent threat posed by malicious software.  Read More ›

Bid Shopping: Can Bid Conditions Bar that Practice?

General contractors and subcontractors that routinely bid for construction work are aware that, in most situations, an invitation to bid on a project is merely an invitation to submit an offer. The bid itself is the offer to perform the work. The soliciting party—usually the general contractor, but sometimes subcontractors and suppliers—must accept the offer in order to form a contract. Acceptance is paramount; without it, there can be no contract. The “bid-as-an-offer” concept is simple enough, but it often leads to one very important question: when has the general contractor actually accepted the proposal and entered into a binding agreement with a subcontractor? The answer to this question is not always clear-cut.

Differing Site Condition Denial

Introduction

Many standard form construction contracts contain a provision defining two types of differing site conditions: Type I and Type II. Type I differing site conditions consist of subsurface or latent physical conditions at the site, which differ materially from those indicated in the contract. Type II differing site conditions consist of unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in the contract. This article focuses on Type I differing site conditions claims. Read More ›

The Necessity for Fully Responsive Proposals

With relatively limited exceptions, most federal government contracts are awarded following a “best value” evaluation by the agency. To compete for the award in this process, contractors typically respond to a RFP, which requests the contractor to address a variety of topics including, but not limited to, its performance plan, relevant experience, past performance, etc. Failure to directly address a stated requirement or evaluation criteria of the solicitation, can result in a lower evaluation by the agency as occurred in Alares, LLC, Comp Gen. B-407124 (Nov. 24, 2012) (“Alares”). Read More ›

Recovery of Attorneys' Fees Under the Miller Act

Background

A supplier sued the general contractor and surety, to recover payment for materials it supplied on a federal Miller Act project in Georgia, in U.S. ex. rel. New Millennium Building Systems, LLC v. Paul S. Akins Company, Inc., 2012 WL 405 1874 (N.D. Ga. 2012). The supplier’s only substantive claim for relief was on the payment bond provided under the Miller Act, 40 U.S.C. §§ 3131-34. As part of its relief, the supplier sought to recover from the surety its attorneys’ fees as allowed under a Georgia statute that makes sureties liable for bad-faith conduct in handling claims on a bond. 

The contractor and the surety in New Millennium asked the court to strike the claim for attorneys’ fees, arguing that the supplier could not recover attorneys’ fees allowed under a state statute, for a violation of the Miller Act. The court ruled that the supplier’s claim for attorneys’ fees under the Georgia statute must be stricken, without ever considering the allegations of bad faith. The court reasoned that any recovery of attorneys’ fees under a Miller Act claim must be on the grounds allowed under federal law. Therefore, the supplier could not recover attorneys’ fees allowed under a state statute, in a Miller Act claim.

Billing with No Intention of Payment

In GaN Corporation, ASBCA No. 57834, 2012 WL 2997037, a contractor appealed a government claim alleging contracting overcharging on a contract for hours worked by salaried employees. The contractor billed for the work with knowledge that the corresponding payments by the government would not be paid to the salaried employees who had worked those hours. This scenario could easily develop into a claim by the government that the contractor had wrongfully over billed or committed a violation of the False Claims Act. The Armed Services Board of Contract Appeals (“ASBCA” or “board”), however, sustained the contractor’s appeal ruling that the contractor was entitled to the amount charged to the contract and withheld by the agency. The board ruled in favor of the contractor after interpreting the terms of the contract and finding that the two parties had agreed that all hours worked would be billed to and paid by the government. Read More ›