A performance bond ensures that the contractor or subcontractor that obtains the bond will complete its work under the parties’ contract. When a bonded contractor or subcontractor defaults, the surety that issued the bond should step in and exercise one of its options under the bond.

One of the surety’s options is to complete the defaulted contractor’s or subcontractor’s work. Frequently, the performance bond provides that a surety will not have an obligation to step up and complete the work unless the contract with the contractor or subcontractor has been terminated.

The United States Court of Appeals for the First Circuit very recently considered whether a surety was liable for over $3 million in remedial costs that a prime contractor incurred to repair the work of one of its bonded subcontractors. See Arch Ins. Co. v. Graphic Builders, LLC, 36 F.4th 12 (1st Cir. 2022).

Continue Reading Surety Avoids Liability Because Subcontractor Was Never Terminated

In 2020, I read many articles addressing how contractors can mitigate the effects of COVID-19 on construction projects. I also wrote similar articles, including tracking COVID-19 impacts and whether a contractor can get more time and money due to COVID-19 impacts.

Fast forward to 2022 and the new hot topic is inflation. The cost of many things used to build a project have gone up significantly the last year and a half, including lumber and plywood (+101%), copper and brass mill shapes (+52%), plastic construction products (+45%), and gypsum or drywall (+29%).

As a result, many contractors are feeling the pinch of these increased costs and find themselves in a position where they may lose money on a project if construction costs do not go back down.

Public owners are addressing the impacts of inflation on existing and new contracts in different ways. For example, the United States Department of Defense (DOD) recently issued a memorandum providing guidance to contracting officers (COs) how to deal with the impact of inflation.

Continue Reading How to Address Cost Increases Due to Inflation on Construction Projects

Unpaid subcontractors on federal government projects typically have payment bond rights that allow subcontractors to sue for payment to which they are entitled. There are many deadlines subcontractors must meet to preserve their rights under a payment bond. One deadline requires subcontractors to file a payment bond claim no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.

One year seems like plenty of time to file a payment bond claim, but you would be surprised how many subcontractors wait until the last possible second to file a payment bond lawsuit. That’s dangerous because it may subject an otherwise valid payment bond claim to the argument that it’s untimely because it wasn’t filed within one year of the last performance of the subcontractor’s work.

That’s exactly what happened in a very recent federal court case, United States ex rel. RCO Construction, LLC v. Federal Insurance Company. In that case,  a federal court judge provided one of the most thorough analyses of the one year statute of limitations for federal payment bond claims I have ever seen.

Continue Reading The One Year Statute of Limitations for Subcontractor Federal Payment Bond Claims

Change-in-scope claims are one of the most common contractor claims. Typically, scope disputes center on whether work that the owner directed a contractor to perform was part of the original scope of the contractor’s work. If it was part of the original scope, then the contractor may not be entitled to additional compensation or time to perform that work. But if it was out-of-scope work, it may be a breach of contract for the owner to refuse to pay for that work.

At times, scope disputes can result in the termination of the parties’ contract. That’s what happened in a recent dispute between the federal government and a contractor in GSC Construction, Inc. v. Secretary of Army.

Continue Reading Federal Court Rejects Scope-Change and Time-Extension Claims

The use of Dispute Review Boards on large public construction projects has become more and more common. Examples of public owners using DRBs on their projects include the Florida Department of Transportation, the Texas Department of Transportation, and the California Department of Transportation.

DRBs are usually comprised of one to three people who are appointed to the DRB to make recommendations about any disputes that arise on a project. Submission of a dispute or claim to the DRB may be a mandatory step that must be taken before anyone can file a lawsuit seeking additional compensation for work on a project.

Many times, the mandatory claims procedures in the contract between an owner and the prime contractor are flowed down to the subcontractors on the project. As such, there are several things that anyone, including subcontractors, working on a public project with DRB procedures should know.

Continue Reading Three Things to Know About Construction Dispute Review Boards

There are many ways a project owner or contractor can breach a construction contract. The following is a list of the six most common types of claims a contractor may assert against an owner or a subcontractor might make against a prime contractor:

1. Payment claims: One very common dispute is where the owner fails to timely pay the prime contractor or the prime contractor does not pay a subcontractor on time. Cash flow is very important in construction. If the owner does not timely pay the prime contractor, then the prime contractor may have difficulty paying its subcontractors and the subcontractors may not be able to pay their sub-subcontractors and/or suppliers.

Many times, payment disputes turn on whether the owner had a valid reason for withholding funds from the contractor. For example, if the contractor has submitted a payment application for deficient work, then the owner should not have an obligation to pay for that work. But if it turns out that the work was not deficient, then the owner may have breached the contractor by not timely paying the contractor.


Continue Reading The Six Most Common Contractor Claims

Many commercial construction contracts have deadlines for the contractor or subcontractor to complete its work. Typically, a contractor is entitled to the time allowed under the contract to finish its work. If a contractor is forced to complete its work earlier than the specified completion deadline, the contractor may be entitled to additional compensation for accelerating its work.

There are two types of acceleration–actual acceleration and constructive acceleration. Actual acceleration occurs when a contractor is expressly directed to pick up the pace of the work. Constructive acceleration happens when a contractor is entitled to a time extension, but the project owner refuses to give the time extension and requires the contractor to complete its work by the original deadline.

Continue Reading The Basics of Contractor Acceleration Claims

Contractor claims for differing site conditions remain fairly common. There are two types of DSC claims. Under a Type I claim, a contractor can obtain additional time and compensation where the contractor encounters a subsurface or latent physical condition at the project site that differs materially from the conditions indicated in the parties’ contract.

For example, contractors have successfully asserted Type I claims where the contractor encountered a groundwater table that was higher than indicated in the contract documents while performing underground work.

With a Type II claim, a contractor may be entitled to additional time and compensation where there are unknown and unusual physical conditions at the project site that differ materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in the parties’ contract.

An example of a Type II condition may be where a contractor performing a job that requires soil work encounters tough soils that are more difficult to excavate than expected and no bidder, no matter how experienced, would have anticipated the conditions actually found.

If a contractor believes it is entitled to additional time and compensation on a project due to a DSC, the contractor should consider submitting a claim. There are four things a contractor should know about DSC claims:

Continue Reading Four Things to Know About Differing Site Condition Claims

There are two types of differing site condition claims–Type I and Type II claims. Generally, a contractor may make a Type I differing site condition claim where the contractor encounters a subsurface or latent physical condition at the project site that differs materially from the conditions indicated in the parties’ contract.

Under a Type II claim, a contractor may assert a DSC claim where there are unknown and unusual physical conditions at the project site that differ materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in the parties’ contract.

Both Type I and Type II DSC claims can be difficult to prove. Last week, after having a seven-day trial, a federal court rejected a subcontractor’s $2.4 million DSC claim in Phillips & Jordan, Inc. v. United States.

Continue Reading Federal Court Rejects Subcontractor’s $2.4 Million Differing Site Condition Claim

When unanticipated conditions impact a contractor’s ability to perform its work as efficiently as expected, the contractor may consider pursuing a lost productivity or inefficiency claim. There are many ways to price or calculate a contractor’s inefficiency claim damages, some of which can be quite “creative.” Despite the temptation to calculate inefficiency damages in a manner that will create the biggest claim possible, contractors are best served to make their claims as accurate as possible. That is especially true when a contractor must submit its claim to a government owner such as the federal government. In a very recent case, Lodge Construction, Inc. v. United States, the contractor learned its lesson the hard way regarding the submission of inflated inefficiency claims to the government.

In Lodge, the United States Army Corps of Engineers awarded a project to a contractor to rehabilitate a levee in South Florida, which was part of the Corps’ overall “Everglades Update” restoration mission. During construction, the contractor’s cofferdam breached in two sections, flooding the project site. Later, the contractor submitted several claims to the government for three alleged conditions that impacted the contractor’s performance, including constructive changes to the contract specifications and a differing site condition. The contracting officer denied those claims, and the contractor appealed the decisions by filing lawsuits with the United States Court of Federal Claims. Those lawsuits were consolidated, and a five-day bench trial was held regarding the contractor’s claims.

After the trial, the court issued a 46-page opinion in which the court essentially threw out the contractor’s nearly $4 million in collective inefficiency claims against the federal government, because the court found the contractor’s claims were fraudulent. In particular, the court concluded that the contractor’s claims were fraudulent in at least four ways:

Continue Reading How NOT to Price an Inefficiency Claim