Pay special attention to these construction documents
Wednesday, November 02, 2016
People and companies in the construction industry are routinely put in positions where they are forced to navigate complicated legal documents as part of the everyday project and payment process, often without the oversight and support of a construction lawyer.
It is a generally accepted part of construction payment that documents representing a significant impact on party's legal rights are routinely exchanged for payment or the promise of payment. When this is coupled with the tight time frames of a construction project, and the need to get paid quickly to avoid carrying too many costs, the time crunch can mean documents don't get the review they need.
And this is true even when the complicated or nonstandardized nature of the documents at issue would otherwise seem to require some review. While some construction documents (AIA contracts, for example) have moved toward standardization, others inhabit a realm where almost anything goes.
The commonplace nature of many construction documents belies their significant impact on legal rights — so it's important to know what's at stake.
Lien waivers are provided in consideration of a huge majority of construction payments, but these common documents can be one of the most deceptive and dangerous documents exchanged in the construction industry. Since they are so common, many companies view waivers as nothing more than a piece of paper that needs to be "rubber-stamped" to free up payment.
In some cases, this is undoubtedly true, or close to it. But it is not always the case that a waiver means what somebody thinks it means, or that payment is made upon receipt of the waiver, or that lien rights for a particular payment are all that is being waived.
Not giving lien waivers their proper respect as a document exerting significant power over a company's ability to get paid is a dangerous disservice.
Less than a quarter of the states mandate the contents of a lien waiver and/or dictate the proper circumstances in which certain types of waivers can be used. Accordingly, lien waiver documents can be a take-what-you-get unregulated mess. Unscrupulous companies can and do use the leverage of payment to insert complicated and onerous contract language into waivers they know will be signed without much thought.
The purpose of lien waivers should simply be to serve as a receipt of payment made and a waiver of lien rights to that extent. However, they can go further and work to waive all sorts of different rights and improve one party's legal position at the other's expense.
The majority of jurisdictions do not exercise any statutory control or other regulation over lien waiver, and a seeming potential trend of states slowly moving toward a more regulated approach to waivers (at least in some respects) means it's likely that litigation surrounding lien waivers will increase in the coming years. Taking the time to at least read and understand waiver documents prior to their delivery can help companies not start off on the wrong foot.
Joint check agreements
Joint check agreements are familiar to people in the construction industry, but generally unknown outside of construction — despite not being a construction-specific tool. The interesting and potentially troubling part, however, is that there is no such thing as a "standard" joint check agreement.
A joint check agreement is merely a contract between multiple parties agreeing to be bound by certain payment terms. This means that every joint check agreement can be unique, and should be given the same amount of oversight as any other contract.
While lien waivers are regulated in only a minority of states, joint check agreements occupy a position completely devoid of regulation nationwide. There are no laws governing what is allowable in a joint check agreement or how the agreement should work.
Since many in the construction industry misunderstand these contract documents and some of their consequences, these agreements can become a hotbed of payment issues. Further, the expectations for the agreement are different for the "payee" and "payor," so the same agreement works in different ways for different parties.
Despite some commonly held beliefs, joint check agreements are not all the same and don't work in the same way. The specific language of each individual joint check contract controls the agreement, and these contracts are completely unregulated. Each joint check agreement is a standalone contract and must be treated as such.
Reliance on ubiquitous nature unfounded
Since both documents discussed above are "routine" in construction payment, they can be overlooked as mere "forms" or universal documents that need no, or limited, review. The truth, however, is that these legal documents can be complex, can change from project to project and can have significant impact on a party's rights and ability to get paid.
Both waiver documents and joint check agreements should always be reviewed and understood prior to being signed and delivered.
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