Lien waivers are one of the most common documents associated with construction projects. Their ubiquitous nature, and the need to exchange numerous documents quickly and efficiently many times per project, can lead to the potentially significant consequences associated with lien waivers being overlooked, and waivers being rubber-stamped in the rush to get paid. This need for GCs to quickly and efficiently request, provide forms for, and process lien waivers – and the subs’ corresponding need to efficiently provide lien waivers – was a driving factor in the creation of Textura’s CPM’s lien waiver exchange functionality. The electronic exchange of lien waivers is central to Textura’s CPM, but unfortunately for Textura users (both GCs and Subs) there may be problems and difficulties associated with CPM’s waiver functionality that renders the platform insufficient for the intended purpose.
The issues faced by subcontractors in the use of Textura’s CPM lien waiver exchange are different than those faced by GCs, but are worth revisiting to provide a platform from which a discussion of the associated problems for GCs can be discussed in context.
Textura May Assume Payment And Release Waivers – Even If Payment Not Received
The release of an unconditional lien waiver in the absence of actual payment is a fundamental flaw in the potential use of the CPM lien waiver exchange function. In a discussion and evaluation of Textura’s CPM Terms, the American Subcontractors Association Attorneys’ Council noted that CPM’s Terms explicitly set forth what constitutes “completed” payment for the purposes of lien waiver exchange, and that definition can significantly impact subcontractor rights. By providing a third-party escrow-type service, Textura purports to hold a subcontractor’s provided lien waiver and only release it after payment is received. Pursuant to the CPM Terms, unless Textura receives written notice of non-payment within 60 hours of transmission of payment instruction to the GC’s bank, payment is deemed complete, and the lien waiver released, 72 hours after the transmission of those payment instructions, whether payment has actually been made or not.
Clearly, the release of an unconditional lien waiver in the absence of actual payment is a fundamental flaw in the potential use of the CPM lien waiver exchange function. Lien waivers are documents on which parties are supposed to be able to rely – so in many cases, what the lien waiver says is more important than what actually happened. If a supposedly neutral third-party escrow exchange results in a waiver of lien rights for work for which the sub was never paid, it calls into question whether subcontractors can feel secure in the use of the CPM platform.
Textura Allowing GC Rigidity in Waivers and Waiver Practices Hurts Everybody
Fundamental control of acceptable documents and the associated requirements,is given to the GCs through Textura’s CPM. Accordingly, Textura is agnostic as to the contents of lien waivers that may be required, the documentation that may be required for payment, and so forth. While this is, ultimately, an issue subcontractors have with the GCs, the ASA determined that “the [CPM] system allows general contractors to be unduly rigid in the processing of payments, and user experience is often that the generals blame the system and use it to delay issuing payments. . .”.
It is easy to see how giving complete control of the documents and requirements to the GC and then blindly mandating the subcontractors comply could be detrimental to subcontractor rights. This allows and emboldens the GC to use the leverage of payment to secure favorable terms or clauses in the waivers themselves, such that the function of the lien waivers received is expanded from their “receipt-like” intended purpose. These wavers may violate statutory requirements, modify contract terms, or waive rights other than lien rights. While this isn’t fair, a GC can use the CPM platform to require subcontractors to sign this type of document as a prerequisite to payment.
What many GCs may overlook, however, is that the above problems, specifically as related to the exchange of waivers through the Textura CPM platform, can be just as detrimental to them. And, if CPM can create or exacerbate significant exposure problems for both GCs and subs, and CPM “solves” the perceived waiver exchange problem through an unnecessary method, is the purported “efficiency” of the exchange really worth it?
Waivers Through Textura’s CPM May Not Work
The benefit to GCs of receiving lien waivers in exchange for payment is clear. GCs want to avoid double payment exposure, and want to avoid the headaches and issues associated with a mechanics lien filing. Accordingly, GCs typically want to stuff as much protective language into the waiver as possible. While understandable, this may backfire; especially when the waivers chosen can be forced upon the project’s subcontractors through the CPM.
In one case out of New York, The Laquila Group, Inc. v. Hunt Construction Group, Inc., the above-noted potential issues with the exchange of waivers through the Textura CPM came to a head. In that case, the subcontractor brought a claim pursuant to a payment dispute of over $11M, and the GC attempted to have the claim dismissed by virtue of it’s receipt of waivers through Textura’s CPM.
In order to receive progress payments, the subcontractor was required to submit monthly payment applications to defendant, through Textura’s CPM. A mandatory inclusion on the pay-app was form SF-320, titled “STATEMENT OF SUBCONTRACTOR TO HUNT CONSTRUCTION GROUP,” and form SF-330, titled “AFFIDAVIT AND PARTIAL WAIVER OF CLAIMS AND LIENS”. Form SF-320 forms stated that:
No other monies are claimed to be or are due from Hunt Construction group except as listed on the reverse side hereof.
And, form SF-330 purported to waive mechanics lien rights by stating:
In addition, for and in consideration of the amounts and sums received, the undersigned hereby waives, releases and relinquishes any and all claims, rights or causes of action whatsoever arising ut of or in the course of the work performed on the above-mentioned project, contract or event transpiring prior to the date hereof, excepting the right to receive payment for work performed and properly completed and retainage, if any, after the date of the above-mentioned payment pplication or invoices.
The problem was two-fold: 1) Textura’s CPM provided no ability to list anything on the reverse of SF-320 despite the admonition to do so if any other monies were claimed due; and 2) both forms were absolutely required in order to receive progress payments.
Because of this, the subcontractor was able to successfully raise the question of fact as to whether the fact that the forms were contractually required as a condition precedent to receiving payment meant that they did not function as a valid lien waiver because they did not provide support for the proposition that the subcontractor intended the submission of the form to be a waiver of all claims when submitted.
The subcontractor’s argument that, “as the releases appeared on forms required for payment, the forms acted only as receipts and did not convey a true intent by the parties to waive all claims” was accepted by the court for the purposes of not allowing the case to be dismissed.
Since a central tenet of the Textura CPM function is allowing the GC to set the forms and requirements for payment exchange (apparently for the protection of the GC), this decision raises significant questions as to the efficacy of the CPM lien waiver exchange function.