When a contractor settles its claims with the project owner, the proceeds are frequently insufficient to cover payment of all parties on the project. Contractors need to be aware that mechanic’s lien statutes in many states impose a trust on these settlement proceeds for the benefit of unpaid subcontractors and suppliers.

The prime contractor on a commercial project in New York advanced funds to its subs and suppliers during the construction process. It paid invoices for work and equipment for which the contractor had not received payment from the project owner. The contractor eventually settled its claims with the owner and attempted to reimburse itself for these advances but discovered it did not have unfettered discretion over the settlement funds.

The second case in this issue addresses a consulting engineer’s reluctance to express an opinion on the value of a contractor’s suspension of work claim against the project owner. The construction contract assigned this responsibility to the engineer. The engineer’s reticence placed the owner in breach of the construction contract.

The third case involves a public project owner’s refusal to consider a bid because the bidder failed to submit two original bid forms. Alabama’s highest court said the contractor was entitled to a court hearing on the propriety of the bid exclusion.

A contractor could not, without a court order, use settlement funds received from the project owner to reimburse itself for funds it had advanced to subcontractors and suppliers during performance of the work.

A public project owner’s failure to compel its consulting engineer to make a determination called for in the construction contract was a breach of that contract.

An allegedly low bid was excluded from consideration by the public project owner due to the bidder’s failure to submit a second original bid form. The Alabama Supreme Court ordered a hearing on the propriety of bid exclusion due to this minor irregularity.

Disputes over contract claims can sometimes get personal. After all, it’s individuals—real people—who interact on behalf of their respective organizations. Things get said, attitudes are conveyed. A contractor recently sued an employee of the municipal project owner, an employee of the consulting engineer and an employee of the construction manager. The allegations were interference with contract and business conspiracy.

The aggrieved contractor failed to consider the law of agency. Agents acting within the scope of their duties have an identity of interest with their principal—in this case, the municipal project owner. As a Virginia court said, “Consultants and employees advising a municipal owner act as its agents, not as third-party intermeddlers.”

The other case in this issue involved a public project owner’s attempt to void contracts based on the owner’s own irregularities during the procurement process. The effect of the voided contracts would have been to deny the contractor payment for $811,000 of completed work. The project owner did not succeed in this effort.

A public project owner’s employee, outside consultants, and employees of the consultants were acting as the project owner’s agents when evaluating and responding to a contractor’s claim for delay damages.

Substantial, not strict, compliance with a public works procurement statute is required of public project owners.

Liquidated damages for late completion are a contractually stipulated form of delay damages. And, recovery of duplicative damages is prohibited, as it provides a payment windfall in excess of actual damages. A prime contractor’s recovery from a defaulted subcontractor recently provided an interesting application of these principles.

The subcontract did not include a liquidated damages clause, but it did contain a “pass-through” provision—any liquidated damages assessed by the project owner against the prime contractor as a result of the subcontractor’s slow performance were the responsibility of the subcontractor. The subcontract also said the tardy sub would owe the contractor for “extended project overhead.”

The subcontractor argued that the liquidated damages pass-through and assessment for extended overhead amounted to double recovery. The contractor responded that the extended overhead constituted an element of delay damages distinct from the pass-through.

The second case in this issue involves the “cost of repair” measure of damages on a cost-plus contract. The defaulted contractor argued this was not a fixed-price contract where the owner received a defined project for a set price; rather, the owner was responsible for the cost of the work even if it was in need of repair.

The third case addresses the government’s sovereign act of closing access to a military base during the COVID-19 pandemic. While the contractor could not recover increased on-site costs from the government, questions arose about the increased costs of off-site work the contractor could have performed notwithstanding the closure.

A subcontract pass-through of liquidated damages assessed against the prime contractor was a separate element of damages from the contractor’s extended project overhead.

“Cost of repair” is a permissible measure of damages for defective work on a cost-plus contract. The owners reasonably expected workmanlike performance and should not be held responsible for the cost of remediation.