Default termination of a construction contract is a costly and disruptive step for a project owner. It is a last resort. It’s no surprise that a prudent owner would work with a noncompliant contractor in an effort to achieve contract completion. But can the owner continue to make progress payments to a contractor who is seriously noncompliant? Doesn’t the performance surety, which will be responsible for contract completion in the event of a default, have a right to those funds even in the absence of a formal declaration of contractor default?
The Court of Federal Claims recently grappled with these questions. The project owner could continue progress payments to the contractor while complaining to the contractor’s surety about deficient work and missed deadlines. But things changed once the owner learned of impending payment bond claims by the contractor’s subs.
The other case in this issue involved a private project owner’s suit against a structural engineer that had been a subcontractor to the owner’s architect. The owner was attempting to avoid the effect of a two-year statute of repose, which extinguishes malpractice claims against design professionals. The owner argued this was not a malpractice action but a simple third-party negligence claim. That argument, however, ran afoul of Michigan law.
COVID-19's Evolving Impact on Construction - Invitation for Feedback
COVID-19's impact on construction is changing almost daily, depending on which state, county or city you're in. Washington state and New York City have shut down all construction except for key infrastructure, medical facilities and affordable housing; in Boston, all construction has stopped except "emergency" projects. Many projects are still ongoing, with contractors paying more attention to worker protection and social distancing.
As we all struggle to deal with the challenges that COVID-19 presents for construction projects and contracts, Construction Claims Advisor
would like to invite our readers to help their community by sharing experiences, concerns or documents that could benefit fellow construction professionals. Click here or visit the Editor's Notes
at the home page of constructionclaims.com and complete the Comments form at the bottom of the page. Please include links to any relevant documents. Stay safe and well. Thank you.