Construction industry participants are routinely forced to navigate complicated legal documents as part of the everyday project and payment process. Often, the people responsible for managing these processes are forced to do so without the oversight and support of a construction lawyer, or even knowing that the documents can have major bearing on their company’s legal rights.
Documents with significant legal effects for construction industry participants are exchanged every day with cursory review, or even no review at all, in order to facilitate payment or the promise of payment. When the need to exchange the documents is coupled with tight time frames and the cash flow-driven need to get paid quickly, documents often don’t get the review they may need. This remains true even when the non-standardized nature of the documents at issue would otherwise seem to require some review. While some construction documents – AIA contracts for example – have moved toward standardization, others inhabit a realm where almost anything goes.
This article specifically addresses two such non-standard construction documents, Lien Waivers and Joint Check Agreements. The commonplace nature of these two construction documents belies their impact – so it’s important to know what’s at stake, and not get caught in a document trap.
Pay Special Attention to These Two Non-Standardized Construction Documents
Lien waivers are exchanged in nearly every construction project, in consideration of a huge majority of construction payments. But, despite being incredibly common, these documents can be some of the most deceptive and dangerous documents exchanged in the construction industry. Since lien waivers are so common, it’s easy to fall into the trap of viewing waivers as nothing more than a piece of paper that needs to be “rubber-stamped” to free up payment. In some cases, this is undoubtedly true, or close to it. However, waivers don’t always say what you think they do, and it is not entirely uncommon for a waiver to overreach. Unconditional waivers can masquerade as conditional waivers, or the waiver can include legal language that waives rights other than lien rights or to more payment than assumed. Not giving lien waivers their proper respect as a document exerting significant power over a company’s ability to get paid is a dangerous disservice.
Only a few states mandate the contents of a lien waiver, and/or dictate the proper circumstances in which certain types of waivers can be used. Accordingly, lien waiver documents can be a take-what-you-get unregulated mess. Unscrupulous companies can and do use the leverage of payment to insert complicated and onerous contract language into waivers that they know will be signed without much thought. The purpose of lien waivers should simply be to serve as a receipt of payment made and a waiver of lien rights to that extent, however, they can go further and work to waive all sorts of different rights and improve one party’s legal position at the other’s expense.
Joint Check Agreements
Joint check agreements are familiar to people in the construction industry, but are generally completely unknown outside of construction, despite not being a construction-specific tool. The interesting (and potentially troubling) part, however, is that there is no such thing as a “standard” joint check agreement. A joint check agreement is merely a contract between multiple parties agreeing to be bound by certain payment terms. This means that every joint check agreement can be unique, and should be examined like the contract it is.
While lien waivers are regulated in a few states, joint check agreements occupy a position completely devoid of regulation nationwide. There are exactly zero laws governing what is allowable in a joint check agreement, or how the agreement should work. Since many in the construction industry misunderstand these contract documents and some of their consequences, these agreements can become a hotbed of payment issues. This is especially true when the participants do not realize that there is not a “general” or “standard” joint check agreement and assume that all of their joint check agreements on every job will be the same or interpreted the same.
Common Doesn’t Mean Simple
Since both of the documents discussed above are “routine” in construction payment, they can be overlooked as mere “forms” or universal documents that need no, or limited, review. The truth, however, is that these documents can be very complex, can change from project to project, and above all, are legal documents that can have significant impact on a party’s rights and ability to get paid. Both waiver documents and joint check agreements should always be reviewed and understood prior to being signed and delivered.