Most states have statutory schemes to protect the payment rights of contractors and subcontractors on public works projects. Unable to file mechanic’s liens, they are allowed to assert claims against undisbursed project funds held by the public project owner. They are required to submit the amount owed via a certified or verified statement.

This gives rise to a question: must the amount due consist entirely of unpaid invoices for labor and materials furnished to the project? Or, may it include delay damage claims that are disputed and not quantified under the terms of the contract?

The Colorado Supreme Court recently addressed this question. The court ruled that a verified statement of claim could include delay damages to the extent the damages comprised increased labor, materials, and equipment costs caused by delay. However, the statement of claim could not include “purely consequential” damages of delay such as lost profit or idle time. Those damages did not represent value added to the public project.

The second case in this issue involves stipulated cost allowances in a cost-plus contract with a guaranteed maximum price. Although an arbitrator appeared confused regarding the application of the allowances to the maximum price, this did not amount to arbitrator misconduct. A California court was bound to let the arbitration award stand.

A contractor may include construction-related delay damages in a statement of claim under the state Public Works Act.

Although an arbitrator may have misunderstood the allowance provisions of a cost-plus contract and the impact on the guaranteed maximum price, a court will not review factual or legal errors of that arbitrator. Such errors do not constitute wrongdoing.

Public project owners have the authority—and the obligation—to define the project they want constructed. Construction companies bidding on these contracts are dependent on the documentation provided by the owners. A great deal of capital is at stake. It was therefore disappointing when a Minnesota appeals court read a geotechnical report out of the contract, essentially absolving the project owner of responsibility for the information it had provided.

The contract itself listed the “Contract Documents,” including the bid packet. Attached to the bid packet was a 283-page geotechnical report. However, the construction contract did not expressly identify the attachments to the stipulated documents as “Contract Documents.” As a result, the court said the project owner was not bound by the report. The contractor, having experienced a costly differing site condition, was left with no recourse.

The second case in this issue involves a recently completed apartment complex with water intrusion problems. Engineering reports placed some of the responsibility with the structural engineer, a subcontractor to the design architect. The engineer, however, argued it had no contract with the property owner. A Georgia appellate court said the engineer had extra-contractual duties that extended to third parties. Responsibility was not limited to contractual obligations to the architect.

The third case addresses the scope of a bilateral contract modification. While the change order granted additional time for the performance of extra work, it did not waive the contractor’s right to an extension for the government’s administrative delay in issuing the modification.

A geotechnical report attached to a bid packet did not, under the contract’s definition of contract documents, become part of the contract. The contractor had not been entitled to rely on the report and could not prevail with a differing site condition claim.

A contract modification for extra work provided additional time for performance but did not apply to government administrative delay. The contractor could pursue a claim for that delay, despite the absence of a reservation of right in the modification.

A property owner could sue a structural engineer that had been a subcontractor to the design architect despite the lack of any contractual relationship between the owner and the engineer.

Corporate sureties will not issue payment and performance bonds without collateral … and indemnification. In the event of a loss on the bond, the surety wants recourse. Very large, deeply capitalized construction companies may be able to meet these requirements within the business entity itself. The majority of construction companies cannot. The individual owners of the company must co-sign the industry standard General Agreement of Indemnification (GAI) and often pledge their personal assets.

A surety sued its principal/contractor on a bond loss. The performance surety had settled a bond claim by the project owner without the participation or consent of the contractor and without any judicial determination of contractor liability. The individual shareholders and their spouses, co-signers of the GAI, cried foul. However, a federal appeals court was unsympathetic, as the plain language of the GAI gave the surety these rights.

The second case in this issue involves a claim for changed work. The contractor had added a claim item for differing site conditions. The site condition claim was not viable—the contract provisions in question related to the manner in which the work was to be performed, not the physical conditions at the worksite.

Under a standard General Agreement of Indemnification, a performance surety had exclusive discretion to settle project-owner claims against the performance bond. The contractor’s lack of participation in the process and lack of consent to the settlement were not evidence of bad faith on the part of the surety.

A contract did not misrepresent physical conditions at the worksite. Contractor allegations indicated, however, that the government directed performance of the work in a manner which differed from the contract requirements.