ConstructionPro Week, Volume: 3 - Issue: 8 - 02/21/2014

Are ‘Continuing Work’ Clauses Unfair to Contractors?

By Bruce Jervis

 

Virtually every construction contract contains a so-called “Continuing Work” clause. These clauses require the contractor to continue work in accordance with the contract schedule notwithstanding any dispute or disagreement that may arise between the contractor and the project owner. The contractor, of course, retains the right to pursue its dispute remedies under the contract.

 

Do contractors forfeit leverage by not being allowed to stop work? Certainly. But are Continuing Work clauses necessary in order to accomplish construction? Absolutely. It would be untenable if a contractor could bring a project to a standstill every time there was a disagreement or a demand for additional compensation, regardless of whether the matter was large or small.

 

A Continuing Work clause was recently addressed in an interesting context. A Montana statute prohibits contract clauses that preclude contractors from suspending performance when they are not paid in accordance with the terms of the contract. The Montana Supreme Court was asked if that statute rendered a Continuing Work clause void and unenforceable. The Court answered in the negative. The statute protected timely progress payments of agreed amounts for undisputed work. It did not apply to disputed work or claims for additional compensation.

 

What is your opinion? Do Continuing Work clauses go too far, handcuffing contractors faced with abusive treatment by project owners? Or, are Continuing Work clauses a necessary evil, essential to the accomplishment of construction in a timely, orderly fashion? Does the Montana ruling draw an appropriate line between protecting a contractor’s progress payment rights and maintaining construction progress itself? I welcome your comments.

 

COMMENTS

That depends on having both a scrupulous Owner and Contractor.

As a contractor I find it more often than not, that many owners fail to meet their pay obligations and in the most severe cases never pay. The Contractor is forced, in good faith to complete work and keep the projects moving, that at times the owner never pays for or several months behind schedule. This is not right, because there is almost no protection afforded to the Contractor for long delays in payment, which leads sometimes to completed projects that are never fully paid for. The GC ends up being the bank for unscrupulous and primary financier of the Owners Project.

There needs to be more protection for good contractors to be able to stop work after set delays to pay schedules by the Owners. After all stopping work is the only motivation for some owners to get back on track with payments owed. If they don't have to pay up, than why would they? More protections need to be put in the marketplace for Contractors without owners making fraudulent claims of bad workmanship to hold up project payments.
Posted by: Mark Helman - Friday, February 21, 2014 10:33 AM


The Project Manual and Schedule should be up front and scope of each trade & Payout schedule. Subcontractors should always putting there bid "Duration of Time" for each section of work should be noted on the estimate. If the Owner changes lets say the construction schedule to assist in the cost to save owner $$

without extending "Duration of Time" a Change order should be required Period!!!

If The Project Manager has his great construction schedule and does not know how to use it. Same should apply. Each Trade should never agree to the above terms. Meetings on most projects that can be addressed each week.

Final thought, Simply replace that clause to

a "Rfi" and abide by the contract. Subcontractor looses most every single time.

:(
Posted by: Kenneth Jones - Friday, February 21, 2014 2:07 PM


IN A NUTSHELL

JEM v. Morrison-Maierle et al.

1. Did the District Court err by concluding that JEM was required to continue performance pending approval of a change order under a contract provision that JEM claims is void as against public policy?

The contract between JEM and Defendant Counties (the Contract) contained the following provision:

6.18 Continuing Work

A. Contractor shall carry on the Work and adhere to the Progress Schedule during all disputes or disagreements with Owner. No Work shall be delayed or postponed pending resolution of any disputes or disagreements, except as permitted by Paragraph 15.04 or as Owner and Contractor may otherwise agree in writing.

N. B. - Paragraph 15.04 explicitly provides that the contractor may terminate performance if monthly progress payments are not made. Thus, Paragraph 6.18 clearly limits its applicability to disputes that do not involve an owner’s failure to make progress payments.

JEM asserts this provision is void under § 28-2-2116(2), MCA, which

provides:

A provision, covenant, clause, or understanding that is in, collateral to, or affects a construction contract and that states that a party to the contract may not suspend performance under the contract or terminate the contract if another party to the contract fails to make prompt payments under the contract as provided in 28-2-2103 is against the public policy of this state and is void and unenforceable.

Section 28-2-2103, MCA, clearly recognizes an owner’s right to dispute all or part of a progress payment request for a litany of reasons, including “disputed work or materials,” § 28-2-2103(1)(c)(iii), MCA, and requires an owner to promptly pay only the “approved amount.” JEM’s argument would turn a statute meant to protect contractors’ progress payments for agreed-upon work into a mandate that owners progressively pay contractors for billed amounts regardless of work quality or conformance with the contract.

However, we decline to address JEM’s claim . . . in light of MMI’s argument that the change order request was properly denied by reason of JEM’s failure to comply with the Contract’s notification procedure for nonconforming conditions. The Contract contained the following provision regarding notification of the owner upon discovery of subsurface conditions that were materially different from the conditions indicated in the Contract:

4.03 Differing Subsurface or Physical Conditions

Contractor shall notify the Owner and Engineer in writing about differing subsurface or physical conditions within 5 days of discovery and before disturbing the subsurface as stated above. No claim for an adjustment in the contract price or contract times . . . will be valid for differing subsurface or physical conditions if procedures of this paragraph 4.03 are not followed.

JEM did not provide written notice to Defendant Counties until 18 days after discovery of the allegedly differing conditions, and during that time proceeded to disrupt and remove the subsurface material at issue. MMI raised this defense before the District Court and before this Court. JEM has presented no reason why its failure to comply with the Contract notification procedure should not bar its claim under the clear language that “[n]o claim for an adjustment in the contract price . . . will be valid for differing subsurface or physical conditions if procedures of this paragraph 4.03 are not followed.”

It is undisputed that JEM failed to follow the specific notification procedure in the Contract for differing subsurface conditions that was required for payment.

Affirmed.

/S/ JIM RICE

We concur:

/S/ MIKE McGRATH

/S/ PATRICIA COTTER

/S/ BETH BAKER

/S/ LAURIE McKINNON

* * * * *

A SOLUTION to mitigate the adverse effects of such continuing work provisions and disputes or disagreements arising from disputed work or materials is to:

1. Adhere in good faith to the specific notification procedure in the Contract, as well as other procedures for a prompt resolution of any disputes or disagreements.

2. Liquidate a claim forthwith, submit a change order request (COR), and immediately request approval of the COR and a progress payment against it.

3. The COR must include the bases of entitlement, proof of opposing party liability, proof of causation, and proof of damage.

These things will most likely "trigger" the prompt payment responsibility of the opposing party to pay an "approved amount." Then, if full payment, absent good cause, is neither approved nor made, add the prompt payment act interest and penalties as set forth in the applicable laws to the principal amount of the claim, and resubmit a revised COR for approval and payment. Wash, rinse, and repeat in concert with each payment application.

The prompt payment act interest and penalties as set forth in the applicable laws can impose draconian costs upon an opposing party who wrongfully fails to timely approve and pay what is due.


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