By Bruce Jervis
The design and construction process primarily involves two-party agreements, a chain of contractual relationships. Sometimes, however, arrangements are created which involve three or more parties. Examples include claim sponsorship and joint check agreements. When these agreements fail to allocate financial proceeds, disputes follow. Two recent cases provide examples.
The first case involved a prime contractor’s sponsorship of a subcontractor delay claim against the project owner. The contractor eventually settled the dispute with the owner on behalf of itself and several subcontractors. But the settlement agreement was not itemized and did not allocate the proceeds among the multiple claimants. Litigation ensued.
The second case was a dispute over a joint check agreement which did not specify the division of the joint check proceeds between the two endorsers. A Texas court was asked to decide whether, by endorsing the check, a party was deemed to have had access to all of the proceeds.
Why did these agreements fail to address the allocation of the financial proceeds which were the core of the agreements? Inadvertence or carelessness is the best guess. But it raises a question. Shouldn’t agreements which contemplate the allocation of proceeds always stipulate a framework, if not a formula, for the division of those proceeds? It may not be possible to specify the division with mathematic precision, but it should be possible to state the parties’ assumptions and expectations. What practices have you observed in this regard, and what would you recommend? I invite your comments.