“Oops, I Forgot to Read the Release!”
Kegler Brown Construction Newsletter February 1, 2007
Pay requests and partial lien waivers in the past were traditionally fairly straight forward, brief and only designed to acknowledge the receipt of partial payment and the waiver of lien rights through that point in the job. However, more and more pay requests, change orders or lien waivers have been drafted with broad release language designed to trap the unwary.
For example, a pay application might contain wording that releases all claims for work performed prior to the pay request and the contractor or subcontractor may inadvertently waive pending change order requests or accrued retainage.
Another example is when a change order contains wording that all direct and indirect costs associated with the change order issue are extinguished or released, but the contractor is only being compensated for direct "hard costs" associated with the change. This wording typically excludes any subsequent claim for "soft costs" like inefficiencies, extended general conditions or a time extension, or the cumulative impact of multiple change orders.
Similarly, lien waivers can be broadly drafted to release all lien rights on a project, including work yet to be performed. Contrary to popular belief, this type of waiver of lien rights (in advance) is enforceable in Ohio.
These developments mean that contractors and subcontractors should carefully review non-typical (i.e. non-AIA) documents closely and should be careful to reserve rights to issues or compensation that are not intended to be extinguished at that time. AIA change orders and payment applications do not contain releases and therefore are favored for these purposes.
Otherwise, contractors and subcontractors will need to modify the documents to reflect the true intent of the parties.