Volume 7 - Number 43 | November 2, 2009
Recent Issues
EDITOR'S NOTES | Issue 7-43
Construction contracts usually call for periodic progress payments from the project owner to the constructor. Unless a project is small and of short duration, it is unreasonable to expect a contractor to fully finance the performance of the work to completion. And, the work in place represents value added to the owner's property. The question is, how is that completed work valued and how is the progress payment calculated?
In a case reported this week, progress payments under a fixed-price subcontract were structured in a most unorthodox way: On certain calendar dates, stipulated amounts were to be paid. The payments were not tied, under the terms of the contract, to a percentage of completion or the value of the work in place. The prime contractor refused to make a full payment on a designated date, complaining that the sub was not staffing the job adequately or making sufficient progress. A New York court was left to sort out the respective rights of the parties.
Another case this week involved a contractor's right to be on a list of pre-qualified bidders for a complex construction project. One company attempted to aggregate its past experience on smaller projects in order to qualify. The GAO said that was not permissible. This week's issue also includes a "best practices" piece on the establishment and release of retainage.
PERIODIC SUBCONTRACT PAYMENTS NOT TIED TO VALUE OF WORK
Periodic payments in a fixed-price subcontract were not tied to the value or progress of the work, but became due on the stipulated date.
SMALLER PROJECTS COULD NOT BE AGGREGATED TO MEET EXPERIENCE REQUIREMENT
Smaller projects cannot be aggregated to show experience with a project of a larger size. Smaller projects do not present the complexity of a large project.
RETAINAGE RAISES QUESTIONS OF BALANCE AND FAIRNESS
Retainage of a portion of each progress payment is customary in the construction industry. Though it is a reasonable practice to protect the interests of the project owner, it raises questions of fairness and balance. It also affects the interests of third parties.
