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Volume: 16, Issue: 13 - 07/16/2018

 

“Pay-if-paid” clauses are enforceable in most jurisdictions. These subcontract clauses make the project owner’s payment to the prime contractor a “condition precedent” to the prime’s obligation to pay the subcontractor for its work. When properly drafted, the clauses effectively shift the risk of owner nonpayment from the prime to the sub.

 

Courts interpret pay-if-paid clauses narrowly in order to limit the harmful economic impact on subcontractors. This was illustrated in a recent Maryland case. Read more. 


 

A “pay-if-paid” clause in a subcontract was enforceable. By its express terms, however, the clause applied to the “Subcontract Sum.” This was not a blanket waiver of the subcontractor’s right to recover delay damages or other increased performance costs, notwithstanding the project owner’s refusal to pay the prime contractor for those costs.


 

A project owner’s nonpayment under a construction contract excused the contractor’s refusal to perform further and discharged a surety from its performance bond obligations. The obligees of the bonds, including public entities named as additional obligees, could not recover against the bonds.


Volume: 16, Issue: 12 - 07/02/2018

 

It was an unusual situation. The contractor finished the project well behind schedule. The federal project owner certified substantial completion but withheld more than $150,000 in liquidated damages from the final payment for late completion. The owner then negotiated contract modifications for extra work, which the contractor performed.


The contractor argued it was entitled to remission of the liquidated damages. By authorizing additional work, the project owner implicitly extended the project performance period and lost the right to assess liquidated damages. Read more. 


 

The standard “Time Extensions” clause allows the government to stipulate separate performance periods for change orders without altering the completion deadline for the base scope of work. Consequently, the government could withhold liquidated damages for late completion while continuing to purchase extra work from the contractor.


 

A broad form indemnification clause in a subcontract could not shift the prime contractor’s workers’ compensation responsibility to the subcontractor, even though the subcontractor’s negligence caused the injury to the contractor’s employee.


Volume: 16, Issue: 11 - 06/15/2018

 

A choice of venue clause appears to be classic contractual boilerplate language: boring, standard, and likely inconsequential. The clause stipulates the jurisdiction and the court in which any litigation must occur. In application, however, the clause is significant. It affects the cost and convenience of litigation. It creates – in appearance, if not in fact – “home field advantage.”

 

In response to these concerns, some legislatures have restricted the enforceability of choice of venue clauses. The state of Washington rendered unenforceable clauses in county public works contracts that require litigation in the county where the project is located. The statute left unchanged, however, a separate provision that requires county project owners to sue contractors in the county where the contractor’s home office is located. This has produced an incongruous situation. Read more. 


 

A choice of venue clause in a public works contract, which required the contractor to pursue claims in the local courts, was unenforceable. However, the public project owner could sue the contractor for breach of contract in the local courts.


 

A certificate of merit signed by a similarly licensed professional was required in an action against design professionals. In the absence of a timely filed certificate, a trial court was required to dismiss the complaint. However, the dismissal could be without prejudice to a future action.


Volume: 16, Issue: 10 - 06/01/2018

 

Many states have enacted prompt payment statutes. The purpose is to discourage prime contractors, on both public and private projects, from withholding subcontractor payment on a pretext, in effect gaining interest-free use of those funds. The sanctions for not making prompt payment typically include monthly interest or penalty, as well as reimbursement of the subcontractor’s attorney fees and other costs.

 

Most state statutes make an exception for payments that are withheld due to a good faith dispute. Read more. 


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