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.
