This article was published in the May 2017 issue of AGC Law in Brief (Volume 3, Issue 3), Practical Construction Law & Risk Issues. It is reprinted here with permission.
Project owners, general contractors and construction managers commonly require their contractors and subcontractors to submit partial waiver and release forms with progress payment applications. The language used in these forms varies, but all function to extinguish certain lien rights and claims. In exchange for the progress payment sought in the application, the contractor represents by signing the form that it is releasing its right to lien the project or seek additional compensation for any and all claims existing as of the date of the application.
Pennsylvania courts generally enforce such partial waiver and release forms, holding that the contractor releases all existing claims in exchange for the progress payment. See Bricklayers & Allied Craftworkers Local 1 of PA/DE v. ARB Constr., Inc., No. 13-3883, 2016 U.S. Dist. LEXIS 37956 (E.D. Pa. Mar. 23, 2016); Sauer, Inc. v. Honeywall Bldg. Solutions, 742 F. Supp. 2d 709 (W.D. Pa. 2010); Kleinknecht Elec. Co. v. Jeffrey M. Brown Assocs., Inc., No. 4997, 2006 Phila. Ct. Com. Pl. LEXIS 180 (Apr. 10, 2006).
Contractors should thus be aware that submitting a partial release risks waiving claims for events that transpired before the date of the payment application, such as claims for additional costs because of delay or acceleration. It is important for Pennsylvania contractors and subcontractors to take action to reduce their risk of unintentionally waiving claims for additional costs due to delay, acceleration and other events. Such actions include reviewing and revising the content of forms during negotiation of the contract, noting known claims when submitting releases, and documenting instances of waiver by the owner or general contractor.
Contractors’ first opportunity to reduce their risk of waiving claims comes during the contract negotiation phase. Contracts that require the execution of partial waiver and release forms with progress payment applications often include a copy of the form as an exhibit to the proposed contract. If the contract does not include a copy as an exhibit, contractors should ask to see a copy or propose the use of their own form.
Contractors should carefully examine the scope of the release language in the proposed form. Very broad language releasing all claims and lien rights through the date of the payment application, including words and phrases like “any,” “all,” “any and all,” “claims and rights whatsoever,” “of whatever kind or nature,” “it may now or hereafter have” is common. Courts have consistently treated such broad language exactly as it sounds, ruling that it clearly and unambiguously waives all contractor claims, including claims for delay and acceleration. See, e.g., First Gen. Const. Corp., Inc. v. Kasco Const. Co., Inc., No. 13-3883, 2011 U.S. Dist. LEXIS 55349 (E.D. Pa. May 24, 2011). Contractors should work with counsel to identify broad language, evaluate its potential implications, and explore options to modify or strike it. Contractors should also request that waiver and release forms include a specific, conspicuous space in which to identify reserved claims and except them from the release.
Having studied the contract and settled on the content of the release form, contractors should next meet with their project staff to review the process for documenting and preserving claims during the execution of the project. The most critical action contractors can take to reduce their risk of unintentionally waiving claims is to specifically identify claims they wish to preserve on the release forms, enlisting counsel to help when needed. If the release form contains a specific space in which to identify claims, the contractor should absolutely do so. In Bricklayers, cited above, the subcontractor represented in its release forms that “to the extent that there are claims that the undersigned wishes to reserve and except out of this release, they are detailed with specificity on the reverse side of the release.” The subcontractor did not detail any reserved claims on its release forms, and when it later filed a breach of contract claim against the contractor, the court predictably ruled that the subcontractor had waived its claims by failing to note them on the form as instructed.
In the absence of a specific place on the form to note excepted claims, the contractor should modify the form in a manner that clearly evidences its intent to except a claim from the scope of the release. For example, the subcontractor in Sauer, cited above, released all claims it had through the date its 18th payment application by signing and submitting the partial releases. Beginning with its 19th application, however, the subcontractor began manually crossing out the waiver language on the release form and inserting additional language stating that the release “excludes any claims for delay, disruption and inefficiency which Sauer has already written about under separate cover.” As a result, the court found that the subcontractor had not waived its claims for delay, disruption and inefficiency that arose during the periods covered by the 19th and subsequent payment applications.
Finally, project staff should also be reminded to keep detailed records of actions and communications with respect to payment issues during the course of the project. These records should include meeting minutes, phone memoranda, field logs, correspondence (both formal and informal), and any settlement communications. Such records may become important in a subsequent dispute because Pennsylvania courts have occasionally refused to enforce partial release forms where claimants were able to produce records showing that the owner or general contractor acted inconsistently with an intent to enforce the release.
Such inconsistent actions have included a general contractor’s overtures – after having already received the subcontractor’s release – that it would “take care” of the subcontractor, discussions of a possible “liquidating agreement” and joint proceeding against the owner, actual attempts by the general contractor to present the supposedly released subcontractor claims to the owner, and discussions between the parties that claims would be tabled for resolution at the end of the project. See Lydon Millwright Servs., Inc. v. Ernest Bock & Sons, Inc., No. 11-7009, 2013 U.S. Dist. LEXIS 65019 (E.D. Pa. May 7, 2013); Quinn Constr., Inc. v. Skanska USA Bldg., Inc., 730 F. Supp. 2d 401 (E.D. Pa. 2010); United States ex rel. Pioneer Constr. Co. v. Pride Enters., No. 3:CV-07-0994, 2009 U.S. Dist. LEXIS 110935, *21-22 (M.D. Pa. Nov. 27, 2009); Carson/Depaul/Ramos v. Driscoll/Hunt, No. 02166, 2006 Phila. Ct. Com. Pl. LEXIS 277 (June 29, 2006). These cases demonstrate the importance of documenting facts that can later prove the owner’s or general contractor’s express or implied waiver of the right to rely on the releases.
In sum, careful scrutiny of proposed contracts during the negotiation phase, meticulous adherence to contractual claim procedures, and thorough recordkeeping during the project phase will aid contractors in avoiding the unintentional waiver of claims and lien rights. As always, contractors would be prudent to consult experienced construction counsel about payment issues before, during and after the life of any project.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.