When a contractor’s work is suspended by the project owner, two types of overhead continue despite the contractor’s inability to perform work: extended field overhead and continuing home office overhead. The latter is usually referred to as “unabsorbed” home office overhead, while field overhead consists of direct costs related to the performance of a specific contract. Home office overhead is one step removed and therefore viewed with skepticism. The Texas statutes make a distinction.

The Local Government Contract Claims Act waives government immunity to allow contractors to recover what they are owed under the contract. The statute authorizes recovery of a contractor’s increased cost to perform the work as a direct result of a public project owner’s suspension of the work. This has been interpreted to include extended field overhead expenses. However, the statute expressly disallows recovery of “unabsorbed home office overhead.”

The second case in this issue involves a contractual punch list procedure. The owner was deemed to have accepted work items not included on the punch list. However, contractor compliance with the procedure was a condition precedent to the owner’s waiver of a claim.

A Texas public project owner had governmental immunity from a claim for unabsorbed home office overhead, but the owner had no immunity from a claim for increases in the direct cost of performing the work resulting from owner-caused delay.

A contractor was required to comply with the contractual punch list procedure as a condition precedent to the owner’s deemed acceptance of the work and waiver of claim.

When parties have an enforceable agreement to submit disputes to binding arbitration, courts are reluctant to review the merits of an arbitration award. If every award were subject to such review, the purpose and advantages of arbitration would be defeated. An award will be vacated only if an arbitrator exceeded the stipulated authority, violated public policy, or acted irrationally. An award is irrational if it is supported by no evidence whatsoever. These situations occasionally arise.

A New York court recently ordered that a delay damages award be vacated. The arbitrator failed to consider the claimant’s own substantial contribution to late project completion and also calculated delay damages at $1,000 per day, a figure which appeared to have been pulled from thin air.

The second case involves a private project owner naming an incorrect legal entity as the plaintiff in a suit against a contractor and subcontractor. The owner could not correct the problem without putting the claim outside the three-year limitation period of a statute. A California court was asked to bail out the project owner.

The third case addresses a Massachusetts public project owner’s use of the filed sub-bidder method of procurement. An electrical contractor alleged the owner had modified the electrical specifications in a manner that added work not customarily performed by the electrical trade.

An arbitrator’s award of delay damages was irrational and subject to being vacated. The arbitrator failed to account for the claimant’s contribution to late project completion and arbitrarily assigned a daily rate of $1,000 to delay damages.

A project owner named the wrong legal entity as plaintiff in a suit against a contractor and subcontractor. The owner was allowed to substitute the actual property owner as plaintiff and avoid having the suit barred by a three-year statute of limitation.

Work added to a bid package for electrical contractors could be considered a clarification of the specifications and did not violate the filed sub-bidder statute despite an argument that the added work was outside the scope of the trade. 

The two cases in this issue, each involving attempts to settle payment disputes, illustrate some of the pitfalls in administering the process.

In the first, a subcontractor was attempting to obtain final payment, but the prime contractor said the sub had not complied with a condition precedent to payment. The prime later offered to release payment without the precondition. The sub argued the condition had been waived. Meanwhile, the prime contractor said it had merely been an offer in compromise that, when not accepted by the sub, became nonbinding and inadmissible.

In the second, a project owner refused to pay a trade contractor for what the owner deemed deficient work. The contractor filed a mechanic’s lien on the property, and the owner argued the meritless lien prevented the owner from converting its costly construction loan into a long-term mortgage loan. The owner sued the contractor for slander of title.

A prime contractor did not waive a contractual requirement for waiver and release paperwork from its subcontractor despite offering to release final payment without the waivers.

A contractor filed a mechanic’s lien knowing the lien amount exceeded the value of the work performed and would prevent the property owner from converting its construction loan into a long-term mortgage loan. The contractor was liable for slander of title.