Textura’s flagship Construction Payment Management system (“CPM”) — a lien waiver software app — is purported to be a neutral platform for the streamlined exchange of construction documents and information. While the CPM terms note that CPM is not an agent for any specific party and that it is flexible in allowing different parameters to be set by the party with ultimate control, Textura and its CPM routinely face backlash from subcontractors who feel that CPM is a tool that allows GCs to charge subcontractors for the “privilege” of losing rights. Generally, subcontractors’ complaints about Textura and specifically its CPM fall into 3 categories: 1) it’s unfair that subcontractors are forced to pay for the GC’s construction management overhead costs; 2) CPM is inflexible, and/or allows GCs to be rigid in exerting more leverage overpayments; and 3) CPM impinges on subcontractors’ rights, specifically mechanics lien rights.

These complaints, and the Terms and Conditions of Textura’s CPM, were recently examined by the American Subcontractors Association Attorneys’ Council, and their findings set out in an interesting article by Dan McLennon published in the May 2015 issue of The Contractor’s Compass.

Subcontractor Complaints About CPM

As noted above, subcontractors’ complaints about CPM generally fall into three broad categories. The first category is the complaint that it is unfair to force subcontractors to assume the payment for part of the GC’s project management overhead costs by forcing subcontractors to pay for CPM use. Subcontractors are required to pay usage fees, subcontractor deferral fees, and subcontractor service fees – however, as noted in Mr. McLennon’s article, the contract does not specify what, exactly, those fees amount to. In a round-about way, inquiries into the amount of the fees are directed to Textura salespeople. Since discussions with salespeople are not included in the contract itself, the contract does not specifically state what subcontractors will end up paying for the use of CPM.

In the view of many subcontractors, as if being forced to pay for at least some of the GC’s project management overhead wasn’t enough, it adds insult to injury that the platform they are forced to pay for is used by GCs to delay payments or squash subcontractor rights. While the arguments related to the baseline rigidity of CPM are really (at least partially) a misdirected complaint about how GCs use the platform, rather than a complaint directed to CPM itself, it’s telling that CPM allows the GCs to act in this manner. In the words of the ASA Attorneys’ Council,

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. . .

Textura allows GCs the ultimate control as to setting up the acceptable documentation and requirements, so the ultimate responsibility for the payment delays rests with the slow-paying GC. CPM, however, provides a neat scapegoat to which the GC can point to justify those slow payments, to the frustrations of the subs ultimately paying for the use of the platform.

Further, CPM, whether through its Terms or practice, rarely contemplates subcontractors’ rights, and, indeed, can be used to limit them. Many of the subcontractors’ potential issues and complaints can be examined, and a general view of which parties CPM deems worthy of protection determined, by deciphering the CPM Terms of Use.

CPM Terms – Who Does CPM Want to Protect?

The ASA Attorneys’ Council’s review of the CPM Terms makes it clear which parties on a construction project CPM deems worthy of protection, and which are merely along for the ride. While some of the Terms are unclear as to what is allowed or disallowed (in favor of the GC), other Terms are more expressly disfavor able to subcontractors.

One of the ambiguous terms is whether GCs can use CPM to claw back already-made payments to potentially recover for back-charges or damages. As noted by the ASA, “Nothing in the Contract suggests the ACH could be used this way, but nothing in the Contract says it cannot.” Subcontractors do not need to interpret potentially neutral Terms like the foregoing in order to potentially feel that their rights are being disregarded at the expense of the GC’s however. The ASA Attorneys’ Council found numerous other Terms of which subcontractors should be wary. Some of these are addressed briefly below:

  • Notices sent to GC through CPM are ineffective unless actually downloaded by the GC. Since the CPM Terms make clear that Textura is not an agent for the GC, the required use of the Platform is not enough to guarantee the effectiveness of notices delivered through it. This means that change order requests or claim documents must also be submitted through traditional delivery means in order to be guaranteed they will be effective – which calls into question the desirability of the Platform for subcontractors.
  • CPM does not specifically require GCs to protect subcontractors’ confidential information. While the Contract Terms note that parties receiving a subcontractor’s confidential information is limited to using it for the “construction payment management process” the GC is not a party to the contract, and thus, is not bound by the Terms.
  • Textura protects itself with layers of terms, but does not extend protection to the Platform users. While it is natural and expected for a company to protect itself, CPM Terms’ protection seems to at least partially extend to the GC at the expense of the subcontractor.

One particular Term, however, should be of particular note to subcontractors. CPM’s Terms explicitly set forth what constitutes “completed” payment, and since lien waiver exchange is a central tenet of CPM’s functionality, this can have a dramatic effect on subcontractors’ lien rights.

The general idea behind CPMs lien waiver exchange is that Textura provides a disinterested third-party “escrow-type” solution (the necessity and applicability of which is debatable), to solve the problem of each side of the transaction distrusting the other. On one hand, GCs don’t want to make payment until a lien waiver is in hand. On the other hand, lower-tiered parties don’t want to hand over a lien waiver until payment has been received. While this is actually a false problem, the district in the construction payment process led to the CPM-style solution. The issue of waiver documents being supplied by the GC and not allowed to be modified is a fairness and platform rigidity problem that, while a real issue, will not be discussed here.

Textura, then, to make this process work, promises to hold lien waivers until payment is “complete”. This is the reason the Terms definition of complete comes into play and can be detrimental to subcontractors. According to the ASA Attorneys’ Council, payment is deemed complete, and the lien waiver released, 72 hours after payment instructions are transmitted to the GC’s bank unless Textura receives written notice of non-payment within 60 hours of that transmission whether payment has actually been made or not. So, if written notice of non-payment is not received by Textura within 60 hours of the transmission of payment instructions, the lien waiver will be released after an additional 12 hours even if no payment has been made. This could easily be a significant problem for subcontractors who are forced to rely on the CPM’s “escrow-type” solution for lien waiver exchange and don’t receive a promised payment. The news is even worse for lower-tiered parties. If a lien waiver from a lower-tiered party is transmitted by a subcontractor through CPM, the waiver will be released immediately.

The CPM Terms themselves, and the fact that subcontractors, the parties ultimately paying for the Platform use, have no leverage to negotiate those Terms, may give subcontractors pause when examining a requirement to use CPM. In fact, the fact that some Terms may be negatively viewed by subcontractors may be one of the reasons Textura must deal with subcontractor churn. According to the ASA Attorneys’ Council, “the Textura contract provides no protections for subcontractors, subcontractors must be vigilant and persistent in negotiating with general contractors the terms of use of that system. Read more about Oracle Textura & other lien waiver software applications here.