Between Contractors and Subs Should Be Clear

The best way to handle partial releases is for the general contractor to give the subcontractor the opportunity to specifically detail the claims excluded from the release.

By Thomas D. Czik, Esq.

When drafting and signing releases, general contractors and subcontractors should make certain that they are not inadvertently releasing or keeping open claims. Typically, when it makes a progress payment to a subcontractor, the general contractor requires the subcontractor to sign a partial release in which it gives up its right to make a claim against the general contractor based on the work it performed during that progress period. The general contractor's goal is to protect itself against unexpected claims later for the work the subcontractor performed during that period.

Partial releases, though, are often ambiguous as to the claims actually being released. If the subcontractor later makes claim against the general contractor for items, such as indirect or impact costs for contract or change order work performed during that period, the parties may end up in a dispute over whether the subcontractor's claim was covered by the release. General contractors and subcontractors can prevent these disputes by specifically excluding claims in the release.

A recent case shows the problems inherent in not itemizing the claims in the release. A general contractor contracted with an owner to build a new tennis stadium. The contractor subcontracted the masonry work. After the project was completed, the subcontractor sued the contractor for unpaid contract work and claims for delays and inefficiencies. The contractor asked the court to rule that the subcontractor was not entitled to make the claim because the subcontractor had signed partial releases throughout the progress of the work. The contractor argued that the subcontractor had plainly waived its right to payment for extra work as well as the claim. The subcontractor claimed that the partial releases were only receipts relating to the specific progress payments owed at the time it submitted the partial releases and were not general releases.

The partial releases stated they were "expressly limited, and unconditional, to the extent of, and as covered by, payments actually received by the subcontractor" through the date signed. The court found that it was not clear what monies the partial releases covered and that a trial would be needed to determine the monies the contractor and subcontractor intended the partial release to waive. Based on the limiting language of the partial releases, the court stated it was not "unmistakably manifested that the subcontractor intended to surrender its rights to additional monies and such waivers should not be lightly presumed."

The best way for a general contractor and subcontractor to handle partial releases is for the general contractor to give the subcontractor the opportunity to specifically detail the claims excluded from the release. This benefits the subcontractor because the subcontractor can reserve the claim, even if the subcontractor can not calculate the exact dollar amount of the claim until later.

By allowing the subcontractor to exclude claims in the release, the contractor is protected from surprise claims. If the subcontractor later makes claim for an item not listed on the release, it will be clear to a judge or arbitrator that the subcontractor had an opportunity to notify the general contractor of the claim but did not. Also, by giving the subcontractor a chance to list specific claims, the parties can avoid later disputes over which claims were and were not covered by the release. The general contractor should make certain that excepted claims are detailed. For example, if the subcontractor has a claim for delay "disruptions" in the work, the subcontractor should be required to provide details of the events and manner in which the work was affected.

By preventing surprise claims, the general contractor also ensures that it is able to comply with any notice provisions in its contract if the subcontractor's claim should be presented to the owner. The general contractor should make certain that the release ties in with the notice of claim requirements of the subcontract and the contract with the owner. By avoiding ambiguous releases and including provisions concerning notice and claims in the subcontract, the general contractor and subcontractor can protect claims as well as prevent disputes and later surprises.

Thomas D. Czik is a partner with Tunstead Schechter & Czik LLP in Jericho, N.Y.