Look Before You Leap: The Cost of Failing to Preserve Claims When Submitting Monthly Applications for Payment

Poyner Spruill LLP

Poyner Spruill LLP

Subcontractors and contractors with pending construction contract claims, read your monthly application for payment, lien waiver, and change order forms closely before signing. Failure to do so may result in a costly waiver of claims.

Imagine this: You are a subcontractor on a construction project that is nearing completion.  Many of your change order requests are disputed by the general contractor.  Cashflow requires that you bill for the undisputed contract balance. To do so, you execute and submit an application for payment and lien waivers on the general contractor’s forms as a condition precedent to receiving payment.  Have you preserved your claims on the disputed work? A recent North Carolina Court of Appeals opinion serves as a reminder of the impact periodic lien waivers can have on pending construction contract claims.

Gamewell Mech, LLC v. Lend Lease (US) Construction, Inc.,[1] involved a payment dispute between a first-tier subcontractor and a general contractor.[2]  The subcontractor’s monthly applications for payment included a form lien waiver and release, which the subcontractor executed as a condition precedent to receiving payment. Later, the subcontractor made a claim for approximately $2.7 million. Citing Cleveland Construction, Inc., v. Ellis-Don Construction, Inc.[3], the trial court determined that the majority[4] of the subcontractor’s claims for alleged change work, and work outside of the scope of the subcontract, were precluded by its submission of waiver and release forms and change orders during the project. In the end, the court awarded only around $826,000 on the $2.7 million claim.

When change order requests and claims remain unresolved from month-to-month, subcontractors and general contractors must carefully review and consider the documents required to bill for their work along with any change order forms they are asked to execute (which may contain an express waiver of claims).  When in doubt, contact a construction attorney to review these documents.

[1] No. COA19-568, 2020 WL 5167375 (N.C. Ct. App. Sept. 1, 2020) (unpublished).

[2] While this case involved a dispute between a subcontractor and a general contractor, its lessons apply to disputes between other construction project stakeholders, including general contractors and owners.

[3] 210 N.C. App. 522, 709 S.E.2d 512 (2011).

[4] The Court of Appeals specifically affirmed the trial court’s findings and conclusions where it was found that the general contractor’s waiver and release documents submitted with each pay application could not cover the subcontractor’s claims that were not readily apparent due to daily changes on the job.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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