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ConstructionPro Week, Volume: 2 - Issue: 12 - 03/22/2013

Are Claim Sponsorship Agreements an Efficient Way to Resolve Claims?

By Bruce Jervis

 

Claim sponsorship and settlement agreements are a vital tool for administering and resolving claims. They facilitate the consolidation of multiple, interrelated claims of a prime contractor and its subcontractors against the project owner. The claims can then be resolved in a single forum. Yet, claim sponsorship agreements can also raise difficult issues.

 

Under a typical claim sponsorship agreement, the prime contractor prosecutes its own claims and the claims of its subcontractors against the project owner. The prime contractor pays for and controls the prosecution of the consolidated claims, with total discretion to agree on a settlement amount with the owner. The subcontractors agree to accept their portion of the recovery, if any, and nothing more.

 

Determining a subcontractor’s portion of the recovery can be a challenge. In a recent Tennessee case, a subcontractor was entitled to its “pro rata distribution” of the recovery. This led to questions regarding the total recovery from the owner, the purpose of a prior payment from the contractor to the sub, and calculation of a pro rata share. The claim sponsorship agreement, intended to promote efficient resolution of claims, was the subject of separate litigation long after settlement of the consolidated claim against the project owner.

 

What has been your experience with claim sponsorship and settlement agreements? Prime contractors seeking to resolve subcontractor claims frequently promote these arrangements. Do they deliver the efficiency and fairness promised? What is the best way to define, in advance, a subcontractor’s share of an eventual recovery? I welcome your comments.

 

COMMENTS

Sponsorship can create a difficult situation for both the owner and the sub. Sponsorship can be troubling for the sub because the prime contractor is often, in part, responsible for the delay or lost productivity giving rise to the sub's claim. A sponsorship agreement, under which the sub recovers only a pro rata portion of whatever the prime recovers from the owner, gives up those damages to the sub caused by the prime contractor. From the owner's perspective, a liquidating agreement can be troublesome because it forges the prime contractor and the sub into one unit. A sub who can recover only to the extent its damages were owner caused is likely to place all the blame on the owner and none on the prime.
Posted by: David Anderson - Friday, March 22, 2013 12:11 PM


Great topic.

This is further compounded by CM-Multiple Prime contracts, who then defends the Sub who is contracted with by the owner and may or may not be directed by the CM who drafted the T&C's of the subs contract? What has happened to professional ethics?
Posted by: Older Arc. - Friday, March 22, 2013 12:30 PM










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