By Bruce Jervis
It is standard for construction contracts to require that each payment application include affidavits and lien waivers. The mandate can be quite detailed: a complete list of all subcontractors and suppliers furnishing labor or materials to the project; a sworn affidavit that these parties have been paid in full to date; receipts reflecting those payments; and lien waivers – partial or complete – from those parties as well as the party applying for payment.
The detailed nature of these provisions inevitably leads to sporadic or inconsistent enforcement by the party making payment. But it would be a mistake to assume the requirement is mere “boilerplate” of little concern. A recent case out of Mississippi is an example.
A subcontractor completed its performance on a commercial project and requested final payment. A dispute developed between the sub and the prime contractor regarding responsibility for certain state taxes. The prime contractor refused to release the subcontract retainage. The contractor was allowed to pocket that retainage, not based on the merits of the underlying dispute, but rather the subcontractor’s prior failure to furnish the required affidavits and lien waivers.
The most intriguing question raised by this ruling is one that was never asked. Did the contractor consistently enforce the affidavit and lien waiver requirement when processing the subcontractor’s multiple progress payment applications? If not, it could be argued that the requirement had been waived by the contractor’s course of conduct. The issue was apparently not raised during the litigation, so the court did not address it.
What is your experience with the payment application process? Are these requirements, in all their detail, consistently enforced? Or does the matter usually arise only after the fact in the context of a dispute? I welcome your comments.