Under the terms of virtually every construction contract ever drafted, the contractor’s acceptance of final payment operates as a waiver and release of any existing claims. A Texas contractor recently tried to have it both ways. The contractor submitted an invoice for the contract balance. But, the transmittal letter said the contractor reserved its rights under an existing, unresolved differing site condition claim.
The owner issued a check for the invoiced contract balance and the contractor deposited it. The contractor then argued that this had not been true “final payment” because the reservation of rights letter notified the owner that the contractor expected additional compensation. In a recent case, however, a contractor completed subcontracted work with its own forces and charged the sub for labor at average burdened rates from an R. S. Means estimating guide. The sub had attempted to subpoena the contractor’s payroll records, but the discovery deadline had passed. The subcontractor vehemently opposed the use of average wage rates from an estimating guide, but the contractor was allowed to get away with it.
One can only assume that a party would use a secondary source rather than its own actual cost documentation only because it was financially advantageous to do so. Shouldn’t any party asserting a charge for work performed be required to document that charge with records of actual costs?
Should a party ever be allowed to withhold cost records and proceed using estimates from secondary sources? As always, I welcome your comments.
Featured in the January 4th issue of Construction Claims Advisor:
- Contractor Could Not Reserve Claim While Accepting Final Payment
- Owner Guaranteed Contractor’s Payment of Allowance
- Proposal Downgraded Without Any Mention During Discussions
"Should a party ever be allowed to withhold cost records and proceed using estimates from secondary sources?" Isn't this the standard for liquidated damages, given the secondary source is an estimate prior to actual damage. I think it could work both ways, that a backcharge method could be established and agreed to, similar to LD.
Posted by: Bob Wells | 12/24/2009 at 10:59 AM
During my last 20+ years when a value for a change is approved prior to the work being performed, the owner has NO right to see and review the job site records in respect of this change, HOWEVER when an extra work order hos not been preapproved the owner has always had the wright to reveiw the contracotrs records in reference to the work order.
Posted by: Tom Brochu | 12/24/2009 at 11:30 AM
My is that one needs to be careful here. Whatever "pre-approval" for a change prior to work being executed would be a very significant and necessary piece of information.
Posted by: James H. Keil | 12/24/2009 at 11:56 AM
Clearly the key factual component lay in the original contract both parties has equal bargaining power at inception and the CONTRACTOR willingly entered into. His misgiving with "final payment", and the endrun/loophole her is tring to create are misdirected materially baseless...unless the “final payment” contractual provision is 1. Allows it 2.)Ambiguous and thus not bulletproof.
Posted by: Bill | 12/24/2009 at 03:40 PM
If the actual price was twice that indicated by RSMeans, would the sub accept RSMeans or opt to pay the higher actual cost? Sometimes you win, sometimes you don't.
Posted by: Tony padilla | 12/25/2009 at 05:39 PM
The fact pattern doesn't provide some critical items: (1) did the owner's check state "paid in full"? (2) did the contractor deliver a final release and waiver of lien in exchange for receiving the check? (3) did the contractor deliver a final affidavit of payment? The answers to these questions might be used to bolster either the owner's or the contractor's argument.
Posted by: Leonard O. Townsend, Esq, AIA, LEED AP | 01/08/2010 at 07:24 AM