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Coil Construction - AFFIDAVIT OF TOTAL RELEASE AND CERTIFICATION OF ALL BILLS PAID. AFFIDAVIT OF TOTAL RELEASE AND CERTIFICATION OF ALL BILLS PAID form

hi I'm Charlie Jimerson from law firm of Jimerson and Cobb and I'm here to speak to you today on the payment process on a construction project before we get into the presentation just a little bit about myself you're welcome to visit our firm's website Jimerson Cobb calm my biographies on that site I am a board certified construction lawyer all the partners at my firm are board certified construction lawyers and we are board there we are construction law firm located in Jacksonville Florida handle matters throughout the state of Florida and really handle projects throughout the country just so that you understand a little bit about my background we represent all levels of construction industry folks whether it be very large general contractors design-build tech contractors subcontractors and tradesmen sureties insurance companies pertaining to construction coverage claims and have a great deal of experience in material supply so what we're here to talk to you today about is the the payment process in hopes that whether you're a lawyer seeing this as a continuing education or your construction industry professional hoping to bone up a little bit more on the laws pertaining to the payment process you'll have a greater understanding of how money flows where it comes from and some barriers to collecting that money so I've got some gadgets built into our slides and I'll do my best to follow along with those so you have to pardon me if I am using my mouse here to move forward with my presentation but just by way of introduction conceptually construction projects are no different than any other projects in any other business notion being cash is king cash really puts people out of business in construction and for reasons why I will go through a little bit later but cash is controlled by the lenders and owners and a lot of times they get to make the rules and their contra there has to be cash flow in the building trade that's very lifeblood of the enterprise and has enormous impact the payment process has an enormous impact on the cash flow of any given construction project so as a roadmap of where where we're going what we'll discuss today we'll start with talking about the flow of money giving you an overview of how money flows on a construction project then an idea of the payment process the document flow that's associated with construction payments the documents themselves that are associated with construction payments the timing of everything and then an idea of subcontractor cash flow then we'll move on to condition conditions precedent to payment specifically with the contractor we'll discuss payment applications we'll discuss architect or architects certification for payment and then we'll discuss contractors final payment affidavits with respect to subcontractors or contractors will discuss releases and with respect to subcontractors will discuss some potential pitfall areas or items to be considered of such as contingent payments pay one paid clauses payment timing and other requirements such as closeout requirements and lastly we'll discuss retainage and its impact on the construction payment process so moving into our first substantive slide regarding the flow of money as you can see the money starts with the lender and then it trickles down to the owner to the general contractor and it ends with a subcontractor but the payment process doesn't start and stop that way well before the money flows the payment process begins and that begins with the subcontractor and goes up through the GC up through the owner and ultimately it includes the lender so to discuss document flow the construction loans for lenders are very similar to a line of credit that can be drawn against as desired as construction funds are drawn the balance and interest due Rises drawers are typically submitted monthly but can be arranged on a bi-monthly basis or as needed and most loans have a specific set number of drawers included and paid for if additional drawers are required the lender or fund control agent may require additional fees the primary difference with a construction loan is that the funds must be requested in the various forms of draw requests which we'll go over which may must be supported by invoicing or documentation canceled checks other type of proofs of payments now with our slide that we're looking at here the payment process starts at the bottom with the subs and suppliers by submitting documents the GC as you see it goes up one little level the GC submit documents to the owner based on what is received from the substance suppliers the owner with the help from the architect approves the general contractor's documents and submits them along with other documents to the lender lender receives documents has them independently reviewed for approval and make take other steps as required by the contract documents sometimes that might be a title search etc so contractors submit applications for payment to the general contractor on a monthly basis typically on the 20th of the month the GC provides the form the references that I have on our slide here is AI AG 702 that's a typical form that's used in the industry and large projects by reputable contractors the general contractors generally submit one application for payment to the owner on a monthly basis typically this is on the 25th is a month and also using a Form 702 if they're using aid aia Doc's on the project I've got some forms in our slide there which exemplify that and we'll go over the 702 momentarily but one of the things that the GCS will submit as they're submitting payment the pay apps up to the owner are whatever the respective lien release associated with the application typically it's a conditionally release or a partial lien waiver the owner along with the project architect will then review the contractors payment application for payment and to ensure that it requires the request the proper amount of money in comparison to the actual work completed on the project the owner then submits the GCS documents the lender along with a separate draw request that the owner compiles which includes the owner soft costs an example of that might be one of which I've included in the materials once the documents make their way to the lender the lender then independently reviews them for accuracy and items which may mitigate the lenders risk once the documents are approved the lender releases the funds the owner on the draw and the money begins to trickle its way down to the parties much like that schematic that we showed you on the first slide I'm on slide 10 and we're now moving on to the timing process and since this has some gadgets on the slide I'm going to go one by one just to give you an idea of the way the timing works on a construction project so let's say that just using round numbers and on the time line January 1st the subcontractor commences work and begins paying its employees and suppliers January 20th subcontractor would would submit its monthly payment application 25th GC submits its payment application upstream to the owner February 10th the owner pays the GC that's provided that there's no issues that are preventing payment or there's a quick turnaround on the payment application February 24th the GC pays the sub as you can see in this timeline in a perfect world and this is under ideal scenario the subcontractor gets paid fifty five days after performing the work in other words he's floating he or she is floating fifty five days worth of payroll to the material purchases this is obviously a challenge in the moving on to slide 11 for subcontractor cash flow here's a straight line example on this slide based on a typical HVAC sub with a four hundred thousand dollar subcontract amount and a four month duration on a ten thousand dollar project the sub incurs about as you'll see and it sub occurs about twenty five thousand and cost outlays each week well it's working and let's track the net effect which the payment cycle encumbers the sub and burdens the sub subcontractor commences work on january 1st by the time that the pay application is submitted for the sub for a hundred thousand dollars worth of work it's already submitted it's already out late a hundred thousand dollars worth of work just before it even gets around to putting an application in by the 25th but I'm sorry by the 25th by the time the GC submits its work it's a little bit over a hundred thousand month goes by the owner pays the GC subs into the project now if it's twenty-five thousand dollars a week for 175 thousand before the first dollar is received and by the end of its third month on the job it's cool hundred fifty thousand dollars behind on the project in advance the work has been performed but yet unpaid as you can imagine for small subcontractors this is crippling and it's quite a gamble for the sub if their defects or if they're required setoffs I don't think a lot of tradesmen's fully understand that when they're getting into the construction business and that's why there can be a lot of flying out by night contractors subcontractors on projects because they don't understand the capital or they're not they don't understand it or they're not well capitalized to float a construction project moving on to slide 12 which is the contractor pay up an application for payment is a construction document that identifies and presents a method on how the contractor will be paid it contains the services or items that's being incorporated or jobs being executed under the respective contract agreement it's presented as a list with the unit price of each item and the quantities of material or product being furnished it provides both the owner and the contractor with a method of controlling what items or materials have been provided by the contractor it's a great tool to expedite the payment process and it minimize the error possibility some typical payout forms widely used are the AIA G 702 which we've alluded to and the consensus Doc's world by the consensus Doc's 291 is an application for payment on a guaranteed maximum price contract 292 is a payout for a lump sum contact contract and a 293 it incorporates the sketch schedule values format an example of 702 is on slide 13 and this is the American Institute of Architects forum 702 which contractors often use to apply for payment from the architect these applications include specific information regarding the total amount of the work dollar amount of the work completed retainage total payments due to date a summary of the change orders and the current payment that's requested for more information on the form you feel free to visit the AA's website on a particular example note the highlighted portion of the form where the contractor is certifying several things such as completion of the work and financial accuracy of the application the contractor's application for payment is tantamount to an affidavit it's their swearing of everything that's contained in the document the progress the amounts owed the lien releases etc it may be used against the contractor later tries to could include a different or higher amount that it's due such as in a claim a lien courts are entitled to rely on the accuracy of these statements in the sworn applications now moving on to slide 15 and this is the on architect certification for payment now under a construction contract an architect has to certify the payment 702 application for payment and 703 continuation sheet provide for convenient and complete forms in which the contractor can can apply for and the architect can certify that payment is due and we've talked about what the forms the 702 requires the contractor to do but let's talk about exactly what the 702 requires the architect to do and how the architect might view the certification process architects going to look at the contract some to date the dollar amount for working we didn't stored to date the amount of retainage the total previous payment summary of change orders etc through the 702 it's going to break the contract some into portions of the work in accordance with the schedule of values prepared by the contractor as required by the general conditions of the contract agreement note that if it's a schedule of values format the AIA does not furnish a particular schedule of values form 702 again can serve as both the PEI app and the architects certification and it has to be completed and acceptable to the architect the architect's signature certifies to the owner that the payment in the amount indicated is due to the contractor it Alost also allows it's worth noting that the form allows the architect is certified amount different than the amount applied for with an explanation provided by the architect and on our slide 16 there's an idea of where the certification is directly below the contractor certification contractor's final payment affidavits in a nutshell the contractor's final payment affidavit must state that all leaners have been paid in full or show the name of each leaner who has not been paid in full and the amount due or to become to the due to that lien or the owner then must ask for and the contractor is obligated to provide a contractor payment final payment affidavit before any payment is a made that's typically per the terms of the contract as well as statutory mechanic's liens mechanisms the contractor while making a final payment to a contractor without receiving a final payment affidavit causes the payment to be an improper payment which has varying degrees of impact upon state laws or the contract but most notably it could subject the owner to paying multiple times for a particular periodic payment under action contract and could affect the lien rights of the lien or if the affidavit list unpainted lien ORS or the owners received a notice to owner from anyone without receiving a release from them it should make the final payment to the contractor without first consulting an attorney obviously the I've cited some items in on the slides there that some case law pertaining to the owners right to retain final payment until such time as the contractor furnishes the affidavit as well as a Florida Statute pertaining to the owners entitlement or contractor's requirement to give the contractor's final payment affidavit I'm going to next move into releases now in the mechanic's lien process a lien waiver from a contractor subcontractor materialman equipment lessor other party to construction project a lien waiver is their statement that they've received payment and waive any future lien rights to the property of the owner who's a project they're working on generally there are four types of lien waivers there's the conditional waiver on a progress payment unconditional waiver on a progress payment conditional on final unconditional and final conditional waivers on progress payments are the safest waiver for claimants this waiver generally specifies that if they have indeed they given D been paid to date and that includes no returned or stop payment checks and then the waiver is an effective proof against any lien claim on the property unconditional waiver releases all rights through a specific date unconditionally and that includes no return or stop payment checks now one thing that's important to note in the waiver and release process is if you're a contractor and you're certifying that work is done through a certain date make sure that correlates with your pay applications and make sure that the date certain is accurate in your own internal records because if you're releasing through a certain date there's a good chance that well you're going to release that and you're not going to writes through that certain date anything accrued thereafter you may have lien rights too but the date certain is going to be the critical component and not necessarily the amount on the lien release it's important to note that lien releases are many contracts so whatever is in the contract whatever it is in the contract and accepted by the owner on your releases typically are going to have some legal effect especially if it changes the posture of the parties as to their contract now on the conditional waiver conditionals and unconditional I think the unconditional is the safest waiver for the owner obviously you want to get the lien claimants to release all of their rights and responsibilities or rights to the mechanic's lien or construction lien unconditionally immaterial to the payment to check so that's I think that there's a this always ongoing dichotomy on a project as to what liens are going to be provided on progress what things are going to be conditional what things are going to be unconditional you can deal with that upfront and the terms of the contract in how the contract is going to be administered architect can serve as that intermediary but you want to have some understanding as the money starts to flow how the lien releases are going to flow when in doubt you can use an escrow agent third party to hold those funds and aleene's to help facilitate that if there's dispute lien releases only need to be in the form of statutory release courts will uphold such provisions as a condition precedent to payment so long as the provision is not vague and ambiguous specifically many contracts that require a release of liability but the lien component is only going to be governed by the stat respective statute again your contract is going to be really dispositive as to what in howleen releases should be exchanged and what the required terms and language are moving on to well there's some examples of lien releases here in our presentation on page 21 both a conditional upon a progress and conditional upon final now continuing on with conditions precedent to payment there's for subcontractors well for all contractors and subcontractors but particularly for subcontractors they need to be aware of pay one paid their pay a different type of provisions it's a clause that's frequently included in sub contracts and they state it's called as it states if the general contractor is not required to pay the sub unless and until the project owner pays the GC such provisions obviously can be problematic to subcontractors when collection action is necessary if the sub demands payment and the GC has been paid by the owner certainly they will be able to revert back to pay one paid clause on the basis that it's not been paid by the owner they are enforceable in Florida courts are split nationwide on unformed clauses the following states have ruled that these clauses or certain variations of them are valid and they shift the risk from the owner non-payment to the sub that's Arizona Colorado Georgia Florida Illinois Michigan and Maryland in contrast California and New York have totally abolished the pay when paid clauses in other states the enforceability of these provisions remain unclear but courts have tended to invalidate them following States do not appear to have a steadfast rule on the issue but tend to disfavor them and those are Alabama Connecticut Louisiana Massachusetts Missouri Pennsylvania Tennessee in Washington DC the federal 1st and 4th circuit district courts of Appeal have also invalidate ADIZ types of provisions for various region reasons contingent payment clauses such as pay wimp aides must be clearly and unambiguously must be clear and unambiguous in the terms and they must clearly and unambiguously place the risk of non-payment on the subcontractor the burden of clear expression in the language of the pay when paid is on the contractor so thus it would be construed against the contractor in favor of the risk being on the contractor or owner i've cited some case law and some reference to that in our materials now I've give you some example here of a clause that was enforced as a contingent payment clause and I'll read that for you final payment inclusive of retention shall be made within 30 days of completion of the project acceptance of the same by the owner and as a condition precedent proceed a final payment of subcontractor from the owner and that's from the Dicer plumbing case in Florida second District as you can see from that clause using our standards employing our standards it was clear it was unambiguous and it shift the risk of non-payment to the to the subcontractor let's you a clause that was not enforced as a contingent payment clause under no circumstances shall the contractor be obligated to pay the subcontractor until funds have been advanced by the owners another one for earth well for more examples of unambiguous clause there's the bentley construction case which is also a florida second DCA case so you can see on the comparing one clause to the other clause enforceable versus unenforceable the second one which says until funds have been advanced by the owner it doesn't necessarily say the condition precedent to performance it doesn't clear an ambiguous lee shift the risk and it certainly was construed against the contractor one thing to note with respect to contingent payment clauses and pay one paid is that they're not enforceable on a payment payment bond for against the surety in other words payment bond surety must pay the unpaid subcontractor even if the subcollection even if the contractor was not paid by the owner and that's a famous case in florida the yoga Supreme Court case called the OBS versus pace case there's also an equitable defense on a contingent payment clause a contractor must attempt to collect from the owner in good faith if he doesn't or he or she doesn't the subcontractor can collect from the contractor notwithstanding in otherwise enforceable pay when paid or contingent payment Clause so this can be a discovery just because that there's a payment paid clause in a contract doesn't necessarily mean that it's a none this is an issue that can't go to litigation it means that there might be some discovery that needs to be taken on this particular issue namely whether the contractors efforts to collect were in good faith and reasonable under circumstances and as I've cited here on page on 28th of our presentation a lien may provide a decent workaround for sub that does that has a contingent payment clause it's that component of security that an otherwise contract the contract wouldn't provide so it's always important to note that on all sides that just because a contingent payment clauses there doesn't mean that a lien that the lien part the party does not have lien rights moving on to the time--the payment typically in a construction contractor subcontract it will include a time of payment clause that specifies the time and the manner of payment however if payment does if it doesn't payment must be made within 30 days there are under certain state statutes certainly in Florida 713 346 there is a payment on construction project prompt payment type of statute which provides for a fallback both for a fallback of when payment is due as well as some remedies for failure to have prompt pay time of payment clause is best described as the requirement that the payee not be paid until the payment is received rather than unless the payment is received so within let's say a contract has a specific timing as to contractor has to pay subs within 15 days of receipt by the owner that's the time of payment type of clause rather than the one we just reviewed which is the contingent payment Clause contractor doesn't have to pay subs until he's paid by the owner if a time of payment Clause exists the payee is entitled to receive payment after a reasonable time even though the payor is not received payment so long as the reason for payment to the payor is not the fault of the payee that's a lot of orders and ease but I think you'll be able to follow along that precedent by virtue the citation in our slide so there's also some moving on or and we're concluding what is the conditions precedent to payments portion of our payment in our payment process another component is the project closeout the subcontractors may include other requirements enclose out and that's all going to be governed by your contract typically final payment will not be done until closeout documents are delivered which in the circumstances may include warranties submittals as built dry drawings etc here's an example I've put in our slide of contract friendly sub contract final payment Clause contractor film friendly sub contract final payment clauses moving on to the last part of our presentation regarding the construction payment process and that's pertaining to your retainage retainage is a portion upon of the agreed-upon contract price deliberately withheld until the work is substantially complete to assure that the contractor or sub will satisfy its obligations and ultimately complete the construction project in other words retainage provides incentive for the party performing the work to properly complete the work 10% is typically industry standard with respect to retainage just a historically and the practice of retainage dates back to construction of the united kingdom railway system in 1840s the size of the project increased demand for contractors which led to the entrance of new contractors in the labor and art market these were fly-by-night inexperienced unqualified undercapitalized contractors unable to successfully complete the project consequently the railway companies began to withhold as much 20% of the payments just to ensure that they would be able these subs will be able to complete the project should should they there be a default point was to withhold the contractors profit only not only to make the contractor or subs finance the project given the often large scale complexity cost and length of construction projects todays the risk of doing something performing a project not according to plan is almost certain so retainage is really a necessity to offset those risks a common approach is obviously including this retainage provision and of course retainage is something that needs to be included in the contract or else it's not going to be available conceptually it's that incentive to complete the project and also it's important to note that it protects the owner against liens claims fraud contract defaults anything that surfaces throughout the course of a project which may inhibit completion more so now than ever owners and contractors use this is a source of financing the project contractors typically will seek through with hold a lot more retainage than a greater percentage that is being withheld from them it's important to subs to make sure the retainer child is not going to cripple operations and cripple alternate profit margin if it's ultimately needed to be offset and for contractors retain needs to completely address risk same thing for owners if there's retainage on the prod project again it has to be set forth by the contract retains provisions are applicable to sub contracts as well as prime contracts the amount withheld of course determined on a case-by-case basis by the parties negotiating contract usually based on factors such as past performance and the likelihood of the or that the contractor or sub will perform an or default under the contract solvency credit worthiness or something that goes into play when evaluating retainage one structure one constructor retainage in a number of ways subject to statutory requirements 10% again is the norm another approach is to start off with a 10% retainage and then reduce it to 5% much more than 50% of the project is complete a third approach is to carve out material costs from a withholding requirement on the theory that suppliers unlike subs may not accept retainage provisions in their purchase orders change clauses are usually found within the contract terms outlining the procedure the procedure will also need to be something that some of them in the contract it typically parallels the following language owner shall pay the amount due on the payment application less retainage of blank insert whatever specific percentages are and it's generally do in terms of retainage payment it's generally due once the work is substantially complete determining when substantially Sam Sann shal completion occurs is usually very litigated issue the standard analysis finds the event triggered of substantial completion triggered when the owner can Bach you occupy this structure for its intended use in purpose not necessarily tracking issuance of a certificate of occupancy but oftentimes it's tied into that retainage is ripe for abuse subcontractors tend to bear the brunt of retainage provisions except especially those performing work early on in the construction process the main reason for this is that the contractors passed down the owners right to withhold retainage but frequently withhold more than was held withheld from them and frequently don't finalize until the whole project is done as you can imagine as we've already gone through the cash flow process for a subcontractor that's tough to do that's most of their margin at that point for example sub completing site work may complete its work in the first few months of the project but it's generally not allowed to recover we change withheld until the substantial completion date and that's going to be in his coordinates with the sub contract which would typically incorporate the terms of the prime contract this could take a few years depending on the size of the project it just just depends coupled with a few couple this with a contingent payment clause you can imagine that retain egde cash flow process retainage and a contingent faith clause could cause significant financial distress to a subcontractor who didn't do the legwork and write those things out of the contract on the front end another problem well let's move an alternative there are some alternatives that exist - standard retainers provisions that provide the same benefits and protections for example the parties could establish a trust account a trust account could provide some control over the money who has access to it even if it was bit held by the owner or the owners council retainage could be withheld in placing that trust account which is trustee then would have a fiduciary relationship to the contractor for management of that trust money held in retainage that's one way of doing it can the trustee then could also reinvest that money at the contractors direction allowing the contractor it essentially use the funds that would otherwise be dormant other alternatives to retainage are allowing the contractor to substitute security the owner in the form of a performance bond or otherwise perhaps or other collateral perhaps a bank letter of credit or some type of United States backed security such as bills certificates notes or bonds so that in some should address the flow of money on the payment process on a collection on a construction project just in terms of what documents are submitted who they go to whose has certain rights and responsibilities it's I would probably be remiss if I didn't discuss a little bit about the collection process so the collection process if we have some type of payment default a lot of times in construction projects there's going to be the default remedies are going to be employed on the terms of the contract themselves specifically whether there is independent decision-maker whether or not there's contractual conditions precedent to enforcing the contract and be it a mediation viet in arbitration etc but as a claimant who feels and can meet the requirements to exert statutory construction lien the collection the payment process is often instituted through the lien process lien process for subcontractor suppliers is going to require you to serve notices to the owner serve them in accordance with standards articulated by state statute as well as perfect your record and serve your claim a lien within the prescribed time periods often if you're a contractor contract state statutes require contractors final payment affidavits to be proffered prior to actually instituting an action and and it's important to also note that in that collection process with asserting a lien most states have statute limitations periods by which you're bound to in order to foreclosure lien so having knowledge of those process both the noticing the service in the perfection requirements is just another component to getting paid on a construction project okay we are continuing to go through the payment process on a construction project and thankfully I've received some questions from the viewers great questions and I'd like to address them to extent that I'm able to so I'll just start with our first submission and which is good question what are the biggest risks for the owner general contractors and subcontractors in the payment process I think that the best way for me to break this down is talking about item by item each party's particular risks so for an owner their risks are going to be ensuring that the project administration is properly completed that means that the applications are in compliance with the contract that means that the architect is doing its job to certify the work as it progresses that means that the lien releases and the waivers are coming in as appropriate liens are the greatest thing that are really going to affect a owners payment process because construction loan documents require the project to be free and clear from all encumbrances and liens really put a project it puts it off kilter such that a lot of prime contracts between owners and the general contractor will require payment bonds in place performance bonds things like that which enable the project the property itself to stay free and clear from lien encumbrances and gives the lien ors an opportunity to seek redress through the bonding process itself I think another issue that affects owners and it really becomes a risk well you don't want it as an owner you don't want to get out in front of your contractors you're you really want to keep your year the project smoothly administered by paying paying is is the the real critical component because you've got to ensure that the contractor is not carrying too much cost and the subs cash flows not so strapped that it's affecting the quality of performance so you've got to pay and pay timely but there's also a risk there that an overpayment you only want to pay for work that's performed work that's been certified pursuant to the current terms of your contract so overpayment I can see that being an issue you also want to be sure that a risk in the payment process is that you're not certifying defective work that you're not certifying work that doesn't meet quality and workmanship standards and that the work that you are certifying and you're paying for is actually completed work in accordance with the level at which it's been certified you want to ensure that if there has been some issues with payment or quality of workmanship that some retainage that the contractor has and that the owners been able to store away you want to ensure that that covers defects from the contractors side payments payments the name of the game for the contractor is payments making sure that the money is flowing making sure that they're not carrying costs for too long making sure that you're managing the float there and in the payment process for subs or for general contractors you also are managing the you have all the contract administration issues to be concerned about that you might have just from an owners perspective are you fulfilling all the terms of the contract and administering it the added burden from a general contractor's perspective is ensuring their syrup subs are performing so you're certifying in your payment applications with the owner that the work has been performed it's been informed in accordance with standards it's been performed to respective percentages or dollar amounts that you've certified it as and that's going to be your sworn statement that's what's going to bind you both for lien purposes and likely for contract purposes so managing your project is absolutely a strong consideration and a huge risk if you're not the type of hands on general contractor that is able to near perfectly certified performance on a project and then addressing risks from the sub standpoint I think that we've gone into that a good amount but uh cash flow it's all about cash flow for the subs they're the ones who are floating the job in largest degree because they're the first to do work last to get paid I think that a really underrated risk for a subcontractor excuse me is the contractual liabilities that they're taking on the subs are the folks that have the least amount of bargaining power yet the terms are getting crammed down their throats from the contractors and they're taking on a lot of the performance risk they're getting things like contingent payment clauses put in there they're getting additional insured requirements by everybody all the way up the stream put into their sub contracts they're getting you know damages for delay type of things which are affecting perhaps their their ability to move and go on to other contra other projects so I thought the biggest rip risks for the subs are contractual liability and cash flow but great question and I think that based on the breadth of the answer you can see that there's risks for all parties involved in the payment on a construction project in the administration of a construction project so I'll move on to our next question fear what happens if items are left out of the application for payment well that's a lot of the answers to these type of questions it depends on the contract which is such a lawyerly answer but if you're a contractor they're out there or you're non-lawyer you can actually take some comfort in that answer and from a general proposition in the sense that if it depends on the contract that means you have the ability to affect the terms and to affect your outcome and to control your own destiny so the more that you negotiate the better you negotiate and the quality of your advocacy on the front end will really determine on you know what your liabilities are on the back end so addressing the particular question what happens if items are left out of the pay application I think that there's a high degree of likelihood that a waiver scenario has been set up think about what you're doing from a contractor's standpoint and pay application you're certifying the progress of the project you're certifying leaners have been paid you're certifying certain amounts are due and if you're doing that you're doing it as your sworn statement there is a responsibility on your part to do your diligence to make your certifications accuracy and as you can imagine you're inducing reliance on the other parties part the architects going to make its decision on approving the pay application based on your certifications the owner and the blender or the owner is going to pay and the lender is going to fund based on the contract or certification so when you're inducing reliance as pay applications reasonably do and if that reliance is detrimental I think that you've set up a lot of good waiver defenses if you've improperly left out items of your pay application and you seek to remedy them in the future now when I say it depends on the contract you can build in mechanisms in the contract which address the the failure to remedy component for instance all any items any Corrections made for items not included but withheld in good faith or negligently might be addressed as a as a codicil type of provision in a contract so the other all the only other thing I have to add to that is I think that there's a good example or there's a good basis to say that that you've waived the lien rights if you've certified payments that are inaccurate and I think that if you've done it willfully you've really hope as a contractor open yourself up to whole other host of claims and issues which is a good segue into our next question that was submitted and that's what if fraud is committed in the application for payment and that's a that's that's a good good cause looking at these questions just now they're all great questions this that's a good question if fraud is committed of course you're going to have all of the other remedies that you have for fraud that's available common-law you're going to have certainly a breach of contract because the material misrepresentation and material breach has been made at which you're going to go through the breach of contract analysis is incorporating what damages are there you might be able to resend the contract if the the fraud is to the spirit of the bargain between the parties if fraud has been committed in the pay application and it was ultimately not paid and that was reduced to a lien then you're going to have some remedies for fraudulent lien if the fraudulent lien was tantamount to a willful exaggeration of the amounts to knowing if it was a if the lien or was grossly negligent and compilation of the lien such that it it is tantamount to a fraudulent lien or a misrepresentation as to work not performed or money's not doin owing I think you've got a fraudulent lien in front depending on your jurisdiction you may have a statutory cause of action for fraudulent lien fraudulent liens by nature in the pretty draconian punishments in the sense that they're a private cause of action there's normally ensure interest that's associated with the fraudulent lien claims there's attorneys fees provisions that are included in a fraudulent lien claim and there's even a punitive component that you can tap into in the event that the lien there's damages that were resulted from the lien being fraudulently placed upon and clouding the title of property one thing that's also important to be considered of in the bay application if it's fraudulent you know it's not what we're talking about the question was fraudulent so that's a real delineating factor versus just a negligent oops I goofed on the numbers type of scenario if it's fraudulent you may have criminal implications here there are criminal statutes for willfully signing construction documents which overstate the value of work or services or goods for service reform or goods provided there are also licensure implications and if you're aggrieved and that is an owner and you have a contractor that is willy-nilly misstating pavement applications it's well within your rights to go after their licensure so it's a good question and in the event that fraud is is proven you've got a lot of options there let's see I've got some other questions here this question is what would cause a release of liability provision to be considered vague and ambiguous well I think that largely depends on the who what when where how of the release of liability provision so you've got to take it the contract on its terms on its face employing traditional contract construal notions at common law meaning it's going to be construed against the drafter you want clear and unambiguous terms but you want to say who the release who who's being released who's being who's doing the releasing what extent of liability is being released but you know when is the release triggered and how is the release of liability effectuated I think you've got to touch on those terms at least give some type of guidance and control of the contract term if you're in order to have a pretty valid release of liability provision or release of liability if you're talking about an independent release you can make arguments that anything not addressing those material terms are vague in an unambiguous such that the release would be subject to perhaps being unenforceable next question here okay oftentimes a general contractor does not become entitled to payment until the architect provides his certification for payment a what would prevent an architect from providing certification for payment be how would the contractor show bad faith fraud or deceit on the part of the architect so that's a good question so let me let me attack the first part and then we'll move on to the second so what would prevent an architect from providing certification well in some work not completed in accordance with the terms of the contract and that might be perhaps flaws in certification perhaps it wasn't for is maybe the pay up has 50 percent of the project signed off is completed when in reality only 30 percent are completed in accordance with the design specs or maybe there's some workmanship issues or maybe there's some unpaid Lenore's out there and the architects aware of it at any rate if there's the contracts not complied with it's incumbent upon the architect to kick it back to the contractor and work those types of issues out when you want when the certification occurs that's the architecture that triggers the architectures liability under its architects liability under its contract and they're going to want to ensure that that what they're certifying has in fact been accomplished in accordance with the terms of the contract so the second question was how could the contractor show about faith on the part of the architect and I think that's going to be a challenge it's going to be a fact intensive inquiry you're going to have to show that performance will occurred and that the architect perhaps through some improper influence or personal motives or whatever has failed to certify in good faith you're gonna have to show some type of fraud or deceit and you're going to have to likely support it with an independent third-party evaluation of that sometimes that's going to be addressed in the contract not likely because in most of the contracts the architect is the independent decision-maker it's their authority to certify and if they haven't certified in good faith and now you're in a breach situation where you've got breach of the contract on the owners part because the architects acting as its agent and then for that perhaps an independent cause of action against the architect in that situation I presume that I would I would try to have another architect come in review the situation analyze it perhaps even another performance expert another contractor or some type of expert come in and evaluate the application in the project progress and provide is supplemental to the opinion to the architect which perhaps may change their mind and certification or at a minimum or if it's fraudulent outline exactly how they feel that the non approval was deceitful and I think you've set yourself well up well as a contract in that situation for not performing going forward based on owner or architect reach the course code is four seven three the course code is four seven three I think that probably I we've got a couple of additional questions but I think that that we're time restricted so if you have any further questions you can email me my email address is C Jimerson Jimerson Cobb comm and my telephone number is nine oh four three eight nine zero zero five zero I'm the law firm of Jimerson copy you can google them and go to our website and we also have some resources available on our website but feel free to email me direct with your questions and time permitting I'll get back to you in response thank you for your time and attention I wish you the best of luck eat and practice