Perils of Partial Waivers for Progress Payments

By John S. Mrowiec

Contractors and subcontractors commonly sign partial waivers either in advance of or in exchange for progress payments. Typically, these waive the payment recipient's right to a mechanics lien claim to the extent of the progress payment or for work to a specified date.

Sometimes, the contract or subcontract requires that the recipient of the progress payment sign a designated form of waiver.

These designated forms might purport to do more than merely waive mechanics lien rights, depending on the form. Beyond waiving mechanics lien rights, the form might also provide that the signing party "releases" all rights to any "causes of action, claims, suits and demands" that the signing party might have against the prime contractor and owner.

Such was the Partial Waiver and Release Form at issue in Advance Mechanical Contractors, Inc. v. Southeast Wisconsin Professional Baseball Park District, 2007 Wis. App. LEXIS 57 (Dist. One Jan. 30, 2007).

Umpire Needed

SWPBPD involved a payment dispute under a subcontract at Miller Park, the home of the Milwaukee Brewers. Advance Mechanical Contractors Inc. was the above-ground plumbing subcontractor. HCH Miller Park Joint Venture, a joint venture of the Hunt Construction Group, the Clark Construction Group, Inc. and Hunzinger Construction Co., was the construction manager. Southeast Wisconsin Professional Baseball Park District, a municipal corporation, was the owner.

Under the subcontract, the subcontractor was to submit a monthly progress payment application along with a fully-executed affidavit and a Partial Waiver of Claims and Liens and Release Form. If the subcontractor wished to request additional compensation, the subcontract required submission of a written change-order request to be designated on an Advance Quote Log.

The Partial Waiver and Release Form provided that the subcontractor "agreed to release all rights to any 'causes of action, claims, suits and demands' that it could bring against [the construction manager] and [owner] for the work completed through the date of the Payment Application," SWPBPD, 2007 Wis. App. LEXIS 57 at *6.

Importantly, though, the Partial Waiver and Release Form allowed the subcontractor "to exempt from the release particular claims and to preserve them by listing them on Exhibit A to the Partial Waiver and Release Form," SWPBPD, 2007 Wis. App. LEXIS 57 at *7.

Deaths Rock Project

The subcontractor began work on the stadium in 1998. On July 14, 1999, a crane collapsed on the partially completed stadium, killing three iron workers, injuring others and causing a 13-month delay. The subcontractor incurred extended duration damages and extra costs to remove and replace work damaged by the collapse.

The owner had procured a builders risk insurance policy. On Feb. 28, 2001, the subcontractor settled its claim against the insurer for extended home office overhead, interest, lost profits and extra work for payment of $1,600,000, SWPBPD, 2007 Wis. App. LEXIS 57 at *8.

The subcontractor employed the Advance Quote Logs throughout the project to request additional compensation. Admittedly, though, the subcontractor never attached the Advance Quote Logs to any of the monthly Partial Waiver and Release Forms submitted with payment applications.

Prior to settling with the builders risk insurer, the subcontractor filed two public improvement lien claims alleging it was owed $2,478,952 and sued the construction manager and owner to enforce the claims. Within two months of settling with the builders risk insurer, and after completion of the project, subcontractor increased its damages claim by nearly $2,000,000 for "extra overhead due to the increased duration of the project," "loss of business/gross profit due to the extended contract duration," "labor inefficiencies after the crane collapse" and "extra engineering work."

After discovery and unsuccessful settlement negotiations and mediation, both the construction manager and owner moved for summary judgment. Among other things, they argued that the subcontractor had released all claims it now asserted by failing to attach an Exhibit A listing those claims exempt from each monthly Partial Waiver and Release Form. The trial court agreed.

Judgment Against Sub

Not only did the subcontractor lose its claim, but the trial court entered judgment against the subcontractor for nearly $1 million in attorneys' fees and costs of the construction manager and owner. The subcontractor appealed.

The subcontractor argued that it had not released any of the claims for which it sued. The subcontractor's first argument was that the Partial Waiver and Release Form expressly related solely to "work performed in the construction of the Project," that phrase was "defined," according to the subcontractor, in an earlier section of the Form as "work . . . for which payment is due" and that claims of extra work, not yet being agreed approved written change orders, were not actually "due" so could not be released.

The SWPBPD appellate court rejected the subcontractor's argument. First, the court reasoned, the subcontractor's interpretation effectively would allow an implicit exception, unapproved claims for extra work or damages, to swallow the specific exclusion for listed claims. The listing requirement would be meaningless, the court said, if all unapproved claims were implicitly excluded from the release.

Second, the SWPBPD appellate court found that the subcontractor's "definition" was not a definition at all. It referred instead to the period covered by the payment request.

The subcontractor contended that it was unaware of the need to attach the Advance Quote Logs to the release to preserve those claims. The court quickly dispatched that argument emphasizing that it was the subcontractor's "responsibility to read the contents of the Partial Waiver and Release Form," SWPBPD, 2007 Wis. App. 57 at *25.

The SWPBPD court agreed with the subcontractor that the Partial Waiver and Release Form did not support an award of attorneys' fees to the construction manager and owner. The form only provided for attorneys' fees for claims by the subcontractor's lower tier subcontractors and suppliers.

Unfortunately for the subcontractor, though, the Appellate Court held that the subcontract language itself provided for attorneys' fees to the construction manager and owner as prevailing parties. Regarding the reasonableness of the amount of fees, SWPBPD held it was not an erroneous exercise of the trial court's discretion to have found that "the case required a great deal of time for discovery and dealt with complex legal issues that required more skilled attorneys."

The SWPBPD affirmed the trial court's judgment against the subcontractor.

While never explicitly basing its holding or any reasoning on what the court characterized as a "concession," it is difficult to avoid the implication that the court might have been influenced by the following the court chose to include in a footnote: "During discovery, [the Subcontractor] conceded that in recovering $1,600,000 [from builders risk insurer], it actually earned a $600,000 profit," 2007 Wis. App. 57 at *8 n. 2.

Regardless, while there might be particular exceptions applicable in particular circumstances, SWPBPD teaches that a payment recipient who fails to read a monthly Partial Waiver and Release Form and to reserve claims does so at its peril.

John S. Mrowiec is a partner with Chicago-based Conway & Mrowiec, a construction and public contracts law and litigation practice. He may be reached at (312) 658-1100. For information, go to the firm's Web site at www.cmcontractors.com.