Subcontractors that dispute partial payments should not sign releases.
The execution of lien waivers and payment releases is standard operating procedure in contracts between general contractors and subcontractors.
It’s easy to become complacent about their terms and execution. As is the case with almost everything in construction law, this is fine until a dispute arises. Then attention to the details of a specific contract determines who prevails in litigation.
A case decided earlier this year by the U.S. District Court for the Eastern District of Pennsylvania demonstrates the validity of this maxim. Robert M. Palumbi, in an article in Law Blog Construction, discusses the Court’s decision in Bricklayers & Allied Craftworker Local 1 of PA/DE, et. al. v. ARB Construction, Inc. et. al. Case No. 2:13-cv-03883.
General contractor, Ernest Bock & Sons (EBS) contracted with the School District of Philadelphia for a project on a local school. EBS “hired Arb Construction, Inc. (‘AC’) to supply all labor and material to complete the masonry portion of the Project at a cost of $777,5000.00.”
The contract between EBS and Arb stipulated that AC “supply a release of liens from ‘subcontractors/suppliers and any labor/union organization before payment is made.’” AC did this with each application for payment.
Although AC certified it had made the required payments, it did not pay the “union fund obligations” it owed Bricklayers & Allied Craftwork Local 1 for work performed by local union masons.
The union filed suit against AC who, in turn, “filed a third-party complaint against EBS, claiming it breached the subcontract by failing to pay money it owed to AC.”
EBS filed a request for summary judgment claiming AC’s suit was without merit, and a “request for summary judgment on its counterclaim” against AC for breach of contract.
The Court ruled in favor of EBS on both issues. It stated that “AC released all claims it could have asserted through the signed releases.” AC had “’clear options’” that it failed to exercise. AC could have noted EBS’ failure to honor the terms of the contract when it signed the releases, or it could have refused to sign the releases.
Mr. Palumbi notes that courts construe a waiver or release to be a “’contract within a contract.’’’ Both contractors and subcontractors should review the terms of provisions related waivers and release as carefully as the do any other section of a contract.
Eastern District of Pennsylvania Grants General Contractor’s Summary Judgment Claims Based on Releases, Robert M. Palumbi, LawBlogConstruction.com, May 24, 2016.