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Volume: 18, Issue: 12 - 07/01/2020

 

Joint check arrangements are useful business tools. They assure the prime contractor of a steady flow of materials to the job site. They enable the subcontractor to establish a supplier account the sub may otherwise be unable to maintain. They protect the supplier against subcontractor misallocation of payments received from the prime. What they do not do is convert the prime contractor into a guarantor of subcontractor payment to the supplier. This is what the Virginia Supreme Court recently got wrong.

 

In the other case this week, a public owner did not have the right to terminate a contractor that corrected safety issues prior to expiration of a cure notice. Read more.

 

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A lower-tier supplier was allowed to recover payment from a prime contractor even though a joint check agreement expressly disclaimed any contractual or equitable payment obligation on the part of the prime. A 4-3 majority of the Virginia Supreme Court ruled that despite the prime’s payment in full to its fixed-price subcontractor for furnishing and installing the drywall, the prime still had to pay the supplier for drywall furnished to the sub’s account.


 

Under the terms of a termination clause, the contractor was entitled to a notice of any deficiencies and allowed 15 days to cure those shortcomings. A municipality’s default termination was wrongful because the contractor cured safety violations prior to expiration of the 15-day cure period. 


Volume: 18, Issue: 11 - 06/15/2020

 

It is common for construction contracts to stipulate a claim limitation period. A formal written claim must be submitted by the contractor to the project owner within a certain number of days after the contractor becomes aware, or should have become aware, of the factual basis for the claim. Failure to do so constitutes a waiver of the contractor’s claim. It is not unusual for this requirement to be waived when the owner was aware the formal claim was coming and was not prejudiced by the failure to meet the notice deadline. However, as in today's first case, this failure can have unfortunate consequences. 

 

In the other two cases this week, one is about payment for rework on a unit price contract and the other is about abuse of discretion in rejecting a low bid. Read more.

 

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An agency denial or response to a contractor’s initial request for a price adjustment was not required to trigger a 90-day claim filing period. The period started to run when the contractor became aware of a differing site condition. The agency’s actions or inaction did not affect the claim period 


 

 A unit-price dredging contractor was not entitled to payment for re-work necessitated by shoaling in the navigation channel. That cost contingency had to be carried in the contract unit price. The pay measurement was based on the final survey after the work was complete.


 

 A public project owner should not have waived a non-material deviation from the bid specifications for a second low bidder while refusing such a waiver for the low bidder. This was an abuse of discretion.


Volume: 18, Issue: 10 - 06/01/2020

 

Contract specifications are loaded with clauses that may be subject to interpretation. In addition, contractors must make dozens of assumptions at all phases of a contract, from pre-bid to completion. When disputes arise that can't be resolved by the specific reading of a contract, one of the aspects looked to by the arbiters of the dispute is the reasonableness of an assumption or interpretation. The two cases this week both deal with the concept of "reasonableness," one involving time periods for a "pay-when-paid" clause and the other on reliance of a letter of intent. Read more.

 

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A “pay-when-paid” clause in a subcontract violated public policy and was unenforceable. The clause defined a “reasonable time” for prime contractor payment to the subcontractor as the time necessary for the prime to exhaust its litigation rights against the project owner. This was a lengthy and uncertain period of time. It was unreasonable.


 

A prime contractor’s Letter of Intent and proposed subcontract were not a commitment to utilize a subcontractor on a project. The sub did not reasonably rely on those documents when it cleared its calendar for the scheduled performance period and declined to pursue other work.


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