Construction projects typically involve many parties and multiple tiers of contracts. The farther down the contractual chain, the greater the payment risk. Subcontractors and suppliers sometimes have to look up the chain when seeking to enforce their payment rights. This was illustrated in two recent cases.
In a federal appellate case, a project owner sent a letter of assurance to a key supplier, offering to pay the supplier directly or to issue checks to the prime contractor that were payable jointly to the supplier. The supplier didn’t respond. But when the prime contractor failed to pay, the supplier argued that the project owner had guaranteed payment.
A New York court dealt with a situation in which a trade contractor protected its payment rights by filing a mechanic’s lien on the project owner’s property. The owner’s construction manager had promised to indemnify the owner against any liens, but refused when called upon to do so.
The third case this week involved a government solicitation for a cost-plus task order contract. Offerors were required to demonstrate they understood how to prepare task order price proposals. An offeror that botched the process was eliminated from the competition.
