Be Careful of Waivers in Pay Applications

Pay applications and related forms are not always scrutinized by the party submitting the pay application.  A March 2018, decision from the United States Court of Federal Claims is a reminder to subcontractors to be very careful about the waivers and releases that are commonly found in pay application forms. 

In the case of MW Builders, Inc. v. United States, 2018 WL 1150729, the court ruled that the waiver and release language in the subcontractor’s pay application that was submitted to the general contractor prohibited the assertion by the general contractor of a pass-through claim from the general contractor to the owner because the subcontractor had waived and released the claim.

The subcontractor’s pay application, presumably on the form required by the general contractor, included common release language.  The release language stated that the subcontractor “irrevocably and unconditionally releases and waives any and all mechanic’s liens or other liens against the Realty or any other claims on any bonds or any other claims whatsoever in connection with this Contract and with the Realty through the end of the period covered by this Application...” There was no express reservation of any claims by the subcontractor in the release and specifically no reservation of any pass-through claims. 

In this case, the general contractor asserted that both the general contractor and subcontractor did not intend for the waiver to apply to claims that would be passed-through by the general contractor to the owner.  Under the general contractor’s theory, the pay application waiver would only apply to claims that could not be passed-through to the owner by the general contractor.  The general contractor asserted that the pass-through claims should be allowed.

However, the court held that the claims were waived.  The court stated that the general release language of the waiver barred claims from events occurring before the date of the release.  Accordingly, the subcontractor’s claims could not be pursued.

Subcontractors and all project participants should be careful to make sure that any release accurately reflects which claims are released and which claims are preserved.

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