Tag Archives: payment bond

IS A MILLER ACT PAYMENT BOND SURETY BOUND BY A DEFAULT OR DEFAULT JUDGMENT AGAINST ITS PRINCIPAL?

Posted on by

Maguire-O’Hara Construction, Inc. v. Cool Roofing Systems, Inc., 2020 WL 6532852 (W.D. Oklahoma 2020) is an interesting case dealing with suretyship law and the subject of whether a Miller Act payment bond surety is bound by a default or default judgment against its prime contractor (bond principal).

In this case, a subcontractor sued a prime contractor for breach of contract and the contractor’s Miller Act payment bond surety for a breach of the payment bond.  The prime contractor did not respond to the lawsuit and the subcontractor obtained a default against the contractor.  The Miller Act payment bond surety did engage counsel to defend itself in the dispute.  Prior to trial, the subcontractor moved in limine to preclude the surety from raising defenses at trial under the subcontract because a default was entered against the prime contractor.  The subcontractor argued that the surety should be bound by the default and, therefore, precluded from raising liability defenses under the subcontract.  Such a ruling would leave the surety no defenses disputing liability at trial.

[A] suretys’ liability under the Miller Act coincides with that of the general contractor, its principal.  Accordingly, a surety [can] plead any defenses available to its principal but [can]not make a defense that could not be made by its principal.

Maguire-O’Hara Construction, supra, at *2 (internal citations and quotations omitted).

Here, the trial court held that a default against the prime contractor does not preclude its payment bond surety from raising the liability defenses of the prime contractor (the principal of the bond).  In reaching this decision, though, the trial court indicated this ruling may have likely been different if a judgment, such as a default final judgment, had been entered against the prime contractor.   The trial court cited the Eleventh Circuit Court of Appeals ruling in Drill South, Inc. v. International Fidelity Ins. Co., 234 F.3d 1232 (11th Cir. 2020) where the appellate court affirmed a judgment against the surety because the surety was bound by the default judgment against the prime contractor.

To the extent that [the Miller Act payment bond surety] argues that it had no obligation to defend the action against [the prime contractor], we are not persuaded. We believe the issue is not whether the Agreement of Indemnity imposed an obligation on [the surety] to defend [the prime contractor], but whether it conferred a right to defend. The law requires only that a surety have notice and an opportunity to defend before it is bound by a judgment against its principal. We believe [the surety] had this right and opportunity, and simply chose, for whatever reason, not to exercise its right.

[The surety] argues, however, that when a surety and principal are sued in the same action, and the surety answers  and defends on its own behalf, the surety is not bound by a default judgment entered against the surety’s principal. Although we recognize the existence of authority supporting [the surety’s] position, those cases are not binding on this Court; nor do we find their reasoning persuasive.

We believe that the general rule that a surety is bound by a judgment entered against its principal when the surety had both notice and opportunity to defend applies whether the principal and surety are sued in the same action or in separate actions.

Drill South, 234 F.3d at 1237-1237.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

MILLER ACT PAYMENT BOND SURETY BOUND TO ARBITRATION AWARD

Posted on by

Here is an interesting case binding a Miller Act payment bond surety to an arbitration award against its prime contractor (bond principal) that it received sufficient notice of.  Notice is the operative word.  The surety could have participated in the arbitration, elected not to, and when its prime contractor (bond principal) lost the arbitration, it was NOT given another bite out of the apple to litigate facts already been decided.

In BRC Uluslararasi Taahut VE Ticaret A.S. v. Lexon Ins. Co., 2020 WL 6801933 (D. Maryland 2020), a prime contractor was hired by the federal government to make security upgrades and interior renovations to a United States embassy in the Czech Republic.  The prime contractor hired a subcontractor to perform all of the installed contract work.   The prime contractor terminated the subcontractor for default during the course of construction.

The subcontractor demanded arbitration in accordance with the subcontract claiming it was wrongfully terminated.  The subcontractor also filed a lawsuit asserting a Miller Act payment bond claim against the prime contractor’s surety (as well as a breach of contract action against the prime contractor). The subcontractor made clear it intended to pursue its claims in arbitration and hold the payment bond surety jointly and severally liable.  The parties agreed to stay the lawsuit since the facts were identical to those being arbitrated. The arbitration went forward and an award was entered in favor of the subcontractor and against the prime contractor for approximately $2.3 Million.

The subcontractor moved to lift the stay entered in the lawsuit to confirm the arbitration award against the prime contractor and Miller Act payment bond surety.  The prime contractor moved to vacate the award.

Beginning with the prime contractor’s motion to vacate the arbitration award, the Federal Arbitration Act gives limited grounds to support vacating an arbitration award.  The grounds the prime contractor raised will not be discussed. They were all denied because it is difficult to vacate an arbitrator’s final award and that is the important take-away message.  In support of this (and contained in a noteworthy, lengthy discussion by the Court), the Court stated: “The FAA [Federal Arbitration Act] creates a ‘strong presumption in favor of confirming arbitration awards,’ and ‘judicial review’ of such awards ‘must be an extremely narrow exercise.’” BRC Uluslararasi Taahut, supra, at *4.

Of significance here, the subcontractor moved to enforce the arbitration award against the Miller Act payment bond surety, as it should.  Even though the surety was not a party to the arbitration, it was on notice of the arbitration, was notified the subcontractor would look to hold it jointly and severally liable, and the surety consented to the stay of the lawsuit pending the outcome of the arbitration. The Court noted, “[s]uch notice is sufficient to bind [the surety] to the arbitration award.” BRC Uluslararasi Taahut, supra, at *9 (citing cases showing that if the surety has notice of the proceedings against its principal, it can be bound by an arbitration award against the principal).  Further, the Court intuitively stated:

[The surety] clearly knew that the arbitration would occur.  Now dissatisfied with the outcome, [the surety] wishes not to be bound by the very proceeding [the surety] averred would avoid duplicative litigation.  The Court suspects that had [the prime contractor] prevailed in arbitration, [the surety] would be singing a different tune.  [The surety] will not be afforded a second bite at the litigation apple simply because it must now honor its obligations as the surety on the project.

Id.

Remember, if you are arbitrating rights, do not neglect to timely file your Miller Act payment bond lawsuit, or for that matter, any statutory payment bond lawsuit.  Give the surety NOTICE that you intend to hold it jointly and severally liable for any arbitration award entered against its prime contractor (bond principal).   Whether the surety elects to participate in the arbitration is within its discretion, but the key is to give the surety notice so that if you do prevail, you find yourself in same shoes as the subcontractor discussed in this case—binding the payment bond surety to the award entered against the prime contractor.  The prime contractor and its surety should also recognize this likely outcome.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: USE COUNSEL WHEN PREPARING A NOTICE OF NONPAYMENT

Posted on by

If you are a subcontractor or supplier working on a private construction project, you always want to pull up the Notice of Commencement from the public records to see if there is a payment bond in place.  If there is not, you know you have to preserve your construction lien rights as to the real property (the project).  If there is, you know you will have to preserve your rights against the payment bond.

In an earlier posting, I discussed statutory changes changes to notices of nonpayment that were to take effect as of October 1, 2019.   A notice of nonpayment must be served by the unpaid claimant within 90 days of its final furnishing to preserve payment bond rights (for amounts above 10% retainage).   These changes have gone into effect and are important for a claimant to know in order to preserve rights against an unconditional payment bond issued per Florida Statute s. 713.23.   (If you are unsure about your rights relative to a payment bond, please work with counsel to ensure your rights are protected!)  The notice of nonpayment is a statutory form that will need to be notarized by the claimant.  The claimant should sign/notarize because the notice of nonpayment is reflecting amounts owed including retainage, the amount paid, and the approximate amount of money associated with to-be-performed work.

One of the recent statutory changes is that:

A claimant who serves a fraudulent notice of nonpayment forfeits his or her rights under the bond. A notice of nonpayment is fraudulent if the claimant has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration.

It is uncertain how this will be applied to notices of nonpayment other than this mimics language relative to a “fraudulent lien.”  One of the defenses to a fraudulent lien is known as the advice of counsel defense.  It logically makes sense that this advice of counsel defense will also apply to the preparation of notices of nonpayment.  For this important reason, a claimant should work with counsel and have its counsel prepare the notice of nonpayment with the relevant accounting information, whether it be a payment application(s), a change order log, an accounting summary, or potential change orders and issued back-charges.  This will facilitate a discussion as to amounts to include and will support an advice of counsel defense.  No different than a lienor using a lawyer to prepare a lien (and I would encourage all lienors to utilize counsel for lien preparation), a claimant should use a lawyer to prepare a notice of nonpayment.

Please let me know if you need assistance with preserving payment bond rights

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: WEBINAR ON MAXIMIZING PAYMENT DURING COVID-19

Posted on by

How do you maximize payment, particularly during an uncertain COVID-19 economy?  Check out the webinar I did for LevelSet where you can watch the webinar or read the transcript.  I don’t want to give any spoilers, but it discusses preserving and enforcing lien and payment bond rights, tidbits to ensure you are maximizing payment, charting contractual notice provisions relating to force majeure, and those contractual provisions to note moving forward in this new climate. All good-to-know information to ensure you are preserving rights and appreciating risks with a topic that did not cross your mind a few months ago!

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: MAKE SURE TO TIMELY PERFECT YOUR CONSTRUCTION LIEN AND PAYMENT BOND RIGHTS!

Posted on by

In today’s current climate, you do not want to wait until the last minute to record your construction lien or serve your notice of nonpayment to preserve your payment bond rights.  Operate conservatively and preserve these rights now, not later.   Whether preserving construction lien or payment bond rights, the key date is 90-days from your final furnishing date.  A construction lien must be recorded within 90 days from your final furnishing date.  Likewise, a notice of nonpayment (to preserve payment bond rights on a private project) needs to be served within 90 days from your final furnishing date.

It is important to remember that performing punchlist, warranty, and corrective work does NOT extend your final furnishing date. In other words, do not think you can record a lien or serve your notice of nonpayment within 90 days from completing punchlist or warranty work.  That would be a bad idea.  See, e.g., Delta Fire Sprinklers, Inc. v. Onebeacon Ins. Co., 937 So.2d 695 (Fla. 5th DCA 2006) (performing punchlist items insufficient for extending final furnishing date in order for subcontractor to timely serve its notice of nonpayment).

MAKE SURE TO TIMELY PERFECT YOUR CONSTRUCTION LIEN AND PAYMENT BOND RIGHTS!

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: FRAUDULENT NOTICE OF NONPAYMENT

Posted on by

There is a defense to construction liens raised by owners known as the fraudulent lien defense.  A party can assert a fraudulent lien as an affirmative defense or as an affirmative claim.  This is embodied in Florida Statute s. 713.31.

Recently, with respect to payment bond claims, there is also a defense relating to a party’s fraudulent notice of nonpayment.  This fraudulent notice of nonpayment defense mimics the fraudulent lien defense and provides:

A lienor who serves a fraudulent notice of nonpayment forfeits his or her rights under the bond. A notice of nonpayment is fraudulent if the lienor has willfully exaggerated the amount unpaid, willfully included a claim for work not performed or materials not furnished for the subject improvement, or prepared the notice with such willful and gross negligence as to amount to a willful exaggeration. However, a minor mistake or error in a notice of nonpayment, or a good faith dispute as to the amount unpaid, does not constitute a willful exaggeration that operates to defeat an otherwise valid claim against the bond. The service of a fraudulent notice of nonpayment is a complete defense to the lienor’s claim against the bond.

Fla. Stat. s. 713.23(1)(d); 255.05(2)(a)(2).

It can be expected that any party required to serve a notice of nonpayment will receive as an affirmative defense to a payment bond lawsuit that the notice of nonpayment was fraudulent.  There has not been a case as of yet to apply a standard to this defense so it is presumed that the standard will be fairly consistent with the standard applied to fraudulent liens.  Nonetheless, even if the standard is challenging, this will be an expected defense where notices of nonpayment will be challenged as being fraudulent.    Also, a claimant that is not required to serve a notice of nonpayment to preserve its payment bond rights will not have to deal with this notice of nonpayment defense.

If you need to serve a notice of nonpayment to preserve payment bond rights or, alternatively, are the recipient of a notice of nonpayment, it is prudent to consult with counsel to ensure your rights are appropriately preserved and protected.   When dealing with fraudulent liens, a lienor can rely on advice of counsel if the lien is prepared by counsel.   Presumably, a claimant that serves a notice of nonpayment should be able to rely on advice of counsel too if the notice of nonpayment was prepared by counsel.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

TRANSFERRING VENUE OF MILLER ACT PAYMENT BOND LAWSUIT PER MANDATORY FORUM SELECTION PROVISION

Posted on by

Many construction contracts contain a forum selection provision that requires disputes to brought in a particular jurisdiction.  A mandatory forum selection provision will use words of exclusivity, like “shall,” that unequivocally requires disputes to be brought in that jurisdiction.  On the other hand, a permissive forum selection provision will not use words of exclusivity meaning a dispute “may” be brought in that jurisdiction.  Where to file a lawsuit is an initial, important consideration.  (For a further discussion on how Florida deals with forum selection provisions, check this posting.)

Under the federal Miller Act, governed under federal law, lawsuits are to be brought in the district where the contract was to be performed and executed, i.e., typically where the project is located.  40 USC s. 3133.  However, this does not mean that there is not a valid basis to sue in another jurisdiction, or move to transfer venue to another jurisdiction, such as when the underlying mandatory forum selection provision requires a jurisdiction different than the where the contract is to be performed or executed.

For example, in U.S. f/u/b/o John E. Kelly & Sons Electrical Construction, Inc. v. Hartford Fire Ins. Co., 2020 WL 704899 (D. Maryland 2020), a subcontractor filed a Miller Act payment bond lawsuit in Maryland against the prime contractor and prime contractor’s surety.  The federal project was performed in Maryland which is why the lawsuit was filed in Maryland.  The subcontract, however, required that lawsuits “shall be brought in Morgan County, Alabama.”  The prime contractor and its Miller Act payment bond surety moved to transfer venue from Maryland to Alabama.  The federal district court agreed to transfer venue finding that “as with any statutory venue provision [such as in the Miller Act], parties way waive its protections by agreeing to a mandatory forum selection provision.”  U.S., supra, at *3.

Mandatory forum selection provisions are given signifiant weight because this is the forum that parties bargained for prior to the occurrence of any dispute.  This is why examining forum selection provisions prior to filing a lawsuit is an initial, important consideration.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

SUIT ON SUBCONTRACTOR’S COMMON LAW PAYMENT BOND

Posted on by

When a subcontractor furnishes a payment bond, is it referred to as a common law payment bond governed by state law.  There is no federal statute (or even state statute in most jurisdictions) governing the requirements of a subcontractor’s payment bond, hence the reason it is oftentimes referred to as a common law payment bond.  This is different than a prime contractor’s payment bond which is generally governed by federal or state-specific statutes.

In an opinion out of the Northern District of North Dakota, U.S. v. Western Surety Company, 2010 WL 609548 (D. North Dakota 2020), the Court discussed a painting sub-subcontractor’s claim against a subcontractor’s common law payment bond on a federal project.    Here, the subcontractor hired the sub-subcontractor and a payment dispute arose.  The subcontractor furnished its own payment bond.   The sub-subcontractor filed a lawsuit against both the prime contractor’s Miller Act payment bond and the subcontractor’s common law payment bond.  The Miller Act payment bond dispute got resolved and the case proceeded as to the subcontractor’s common law payment bond.

The common law payment bond surety moved for summary judgment claiming the painting sub-subcontractor failed to properly trigger the bond because it failed to provide notice of its claim as required by the terms of the bond.   Since the bond is deemed a contract, the Court looked at principles of North Dakota contract law governing this argument.   The common law bond required a claimant to give written notice within 90 days of its last day of work (which is a common requirement in such bonds).  The surety wanted the Court to construe this language similar to the requirements of the federal Miller Act by requiring the sub-subcontractor to give it notice with substantial accuracy of the claim.  The Court rejected this sentiment, and denied the summary judgment, as the subcontractor’s payment bond made no mention of “substantial accuracy.”   The Court looked at a hodge-podge of communications finding that a reasonable jury could conclude that the painting sub-subcontractor complied with the provisions of the bond.  Additionally, the Court noted that even if the notice was inadequate, the surety failed to establish how it was prejudiced based on North Dakota law that states: “A surety is exonerated…[t]o the extent to which the surety is prejudiced by an omission of the creditor to do anything when required by the surety which it is the creditor’s duty to do.”  U.S., supra, at *6 (internal quotation and citation omitted).

Lastly, the Court discussed how the subcontractor’s common law payment bond mentions the obligee of the bond is the general contractor.  This is how all subcontractor payment bonds are worded.  However, within the bond, there is a definition for “claimants” that allows claimants to sue on the bond.  The Court addressed this to reflect that the painting sub-subcontractor, meeting the definition of claimant in the payment bond, was a third-party beneficiary of the subcontractor’s payment bond and had standing to sue the bond.

This is a good case if you are dealing with a subcontractor’s common law payment bond.  The requirements to sue the bond will be less rigorous than suing a payment bond governed by a statute, such as a Miller Act payment bond.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

GOOD-TO-KNOW POINTS REGARDING (I) MILLER ACT PAYMENT BONDS AND (II) PAYMENT BOND SURETY COMPELLING ARBITRATION

Posted on by

Every now and then I come across an opinion that addresses good-to-know legal issues as a corollary of strategic litigation decisions that are questionable and/or creative.  An opinion out of the United States District Court of New Mexico, Rock Roofing, LLC v. Travelers Casualty and Surety Company of America, 2019 WL 4418918 (D. New Mexico 2019), is such an opinion.

In Rock Roofing, an owner hired a contractor to construct apartments. The contractor furnished a payment bond.  The contractor, in the performance of its work, hired a roofing subcontractor.  A dispute arose under the subcontract and the roofer recorded a construction lien against the project. The contractor, per New Mexico law, obtained a bond to release the roofer’s construction lien from the project (real property).  The roofer then filed a lawsuit in federal court against the payment bond surety claiming it is entitled to: (1)  collect on the contractor’s Miller Act payment bond (?!?) and (2) foreclose its construction lien against the lien release bond furnished per New Mexico law.

Count I – Miller Act Payment Bond

Claiming the payment bond issued by the contractor is a Miller Act payment bond is a head scratcher. This claim was dismissed with prejudice upon the surety’s motion to dismiss. This was an easy call.

A Miller Act payment bond is a bond a prime contractor gives to the United States (US) for a public project. Here, the contractor entered into a contract with a private developer for a private apartment project. There was nothing to suggest that the private developer was, in fact, the US government or an agent of the US government.  There was also nothing to suggest that the apartment project was, in fact, a public project.  The roofer alleged that it believed the US Department of Housing and Urban Development provided funding for the project. The Court found this allegation as a big so-what: “The Court finds this allegation insufficient to demonstrate either the payment bond was furnished to the [US] Government as required by the [Miller Act], or that the apartment complex was a public building or public work as required by the [Miller Act].” Rock Roofing, LLC, 2019 WL at *3.

Count II – Foreclosure of Construction Lien Against Lien Release Bond

The surety moved to compel the roofer’s foreclosure claim against the lien release bond to arbitration pursuant to the contractor’s subcontract with the roofer.  The roofer countered that arbitration was inappropriate since the surety was not a party to the subcontract.

The Court (relying on a Florida district court opinion I was intimately involved with) found that the doctrine of equitable estoppel applied to compel the roofer to arbitration because the roofer’s claim for payment was based on its subcontract that contains the arbitration provision. “Because [the roofer’s] claim on the payment bond depends on its subcontract with [the contractor], the arbitration clause in the subcontract must precede [the roofer’s] right to bring suit as provided by the payment bond.” Rock Roofing LLC at *7.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

GENERAL CONTRACTOR SUPPORTING A SUBCONTRACTOR’S CHANGE ORDER ONLY FOR OWNER TO REJECT THE CHANGE

Posted on by

The opinion in Westchester Fire Ins. Co, LLC v. Kesoki Painting, LLC, 260 So.3d 546 (Fla. 3d DCA 2018) leads to a worthy discussion because it involves a common scope of work occurrence on construction projects involving a general contractor and subcontractor.  The contractor submits a subcontractor’s change order request to the owner and the owner rejects the change order.   What happens next is a scope of work payment dispute between the general contractor and subcontractor.   Yep, a common occurrence.

In this case, a general contractor hired a subcontractor to perform waterproofing and painting.  A scope of work issue arose because the specifications did not address how the window gaskets should be cut and then sealed. The owner wanted the window gaskets cut at a 45-degree angle and the subcontractor claimed this resulted in increased extra work.    The general contractor agreed and submitted a change order to the owner to cover these costs.  The owner rejected the change order claiming it was part of the general contractor’s scope of work even though the cutting of window gaskets at a 45-degree angle was not detailed in the specifications.

After the subcontractor filed a suit against the general contractor’s payment bond surety, the project architect further rejected the change order because gasket cutting was part of the specification requirements.  (Duh! What else was the architect going to say?  It was not going to concede there was an omission that resulted in a change order to the owner, right?)

Importantly, the subcontract agreement stated that, “If a dispute arises between the Contractor and the Subcontractor regarding the Scope of Work, or in the interpretation of the Contract Documents, and the parties hereto do not resolve that dispute, the decision of the [Architect] shall be final.”   As it pertains to this provision, while the appellate court noted the enforceability of the provision, it found that it did not apply because there was not a scope of work dispute between the general contractor and its subcontractor.  The general contractor agreed that this resulted in a change order condition, i.e., that there was a change to the subcontractor’s scope of work, and submitted a change order to the owner for the scope of work change.  Ouch!  The payment bond surety was on the hook to pay for this change order.

A few things that I find noteworthy.

First, the opinion does not include a lot of discussion on language in the subcontract. This tells me that there may not have been great language in the subcontract dealing with the subcontractor’s scope of work.  It is not uncommon to hear that a specification does not include every single detail so if the subcontractor was always required to cut gaskets in performing its scope of waterproofing work then there may be an argument there is not a scope of work change.  Either way, detailing the scope of work in the subcontract is important to account for the inevitable scope of work dispute.

Second, I understand the logic from the general contractor’s perspective of having the architect decide scope of work disputes between a general contractor and subcontractor because the architect is going to naturally disfavor scope of work changes or changes of work associated with its plans and specifications.  This will benefit the general contractor as a rejection of a scope of work change will support the denial of a change order.  With that said, I am generally not in favor of the finality of such a decision from an architect, particularly when addressing the scope of work dispute may warrant a detailed analysis of the governing subcontract. Also, the court in this case seemed to dismiss such language because the general contractor supported the subcontractor’s change.

Third, just because a general contractor supports a subcontractor’s change order request does not mean that it and its surety should automatically be bound by the change and finance the change.  Again, there was little discussion as to language in the subcontract and it does not appear the surety tried to make an argument under the pay-when-paid clause. While such defense is generally not applicable to payment bond sureties, the (creative) argument could be different when dealing with a change order to preclude the effect of a surety and general contractor being on the hook for every change order submitted to the owner that the owner rejects.

And, fourth, this opinion does not address how the general contractor handled or pursued this with the owner.  That is important because if the general contractor agreed and supported the change, there should have been an effort to collect this amount from the owner.  This leads to another important consideration.  In this scenario, the subcontract could include language that any claim the subcontractor initiates stemming from a dispute involving the owner should be stayed pending the resolution of the dispute with the owner.  On the other hand, if the general contractor elects not to pursue the dispute with the owner but recognized the change, then it having to pay for the change makes sense based on the business decision it made.

What are your thoughts?

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.