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Public Bonded Job. Airport Project

FloridaBond Claims

I’m a PM for a second tier sub with a payment and performance bond working for a GC on a public bonded job (airport). Unfortunately, the project was terminated for convenience back in May by the owner due to massive revenue losses from covid. The owner then asked for cancellation and final closeout costs. There were a lot of incurred costs from our suppliers since POs and submittals had been approved for production. There was a lot of heated back and forth with GC about close out costs and coming to an agreed final deductive change order. We were asked by the GC to provide all of our supplier invoices as back up for auditing purposes by the owner. They made us go back to suppliers several times and demand less cancellation/ restocking fees. Only 1 of 3 suppliers was asked to deliver the material to the site. The other 2 suppliers were in mid production and it was determined by owner that there was no benefit in receiving a lot of raw materials and unusable parts so they gave their invoices based on restocking and production costs up until that point . The GC told us the owner needed final material costs and our closeout costs. We were verbally strong armed into believing we were not allowed to take any profit markup on suppliers closeout invoices. We obliged to this as all of this was completely uncharted and no one had any experience in dealing with a terminated public projects like this and we did not want to give the perception we were trying to make a huge profit at the expense of the airports troubles. After all revisions final costs were submitted around June to GC/ owner. Of course, 1 supplier came after the fact and realized he never included 30k of taxes. We let the GC know and they basically told us to pound sand it’s too late for changes all final costs were submitted , we threatened to go directly to the airport directors as not only are we not taking a dime in profit makeup on material Invoices and just passing the true cost through after hours and hours of back and forth, we’re also getting screwed in the back end by late costs not accounted for. They reluctantly gave us a verbal approval and said the owner will pay for the taxes. Finally at the end of July the GC sent our final deductive change order from original contract price / pay application. We reviewed and approved . Unfortunately because of all the numerous invoice revisions and disorganization from chaos termination a few weeks later we realized that the final pay app we certified was actually incorrect...it was missing the 30k of taxes from one supplier and a few other costs. We informed GC and they would not budge stating it was entirely too late for changes at that point. So what we did was ask our suppliers as we have a good relationship with them to help us out on the invoices. We were able to get them to reduce a few percentage and they gave us updated invoices reflecting. We did not tell the GC or owner about this as my opinion was we’re not increasing the bottom line number the owner is paying for termination, and we were not asking the suppliers anything unreasonable. We were totally transparent with them and plainly asked for a reduction to us since we weren’t allowed to take a markup and are taking it on the chin for late added costs that we weren’t going to get paid for. Since July GC has been quiet, we’ve been hounding them about final payment and every week it’s the same story that they’re about to get paid and they won’t pay until they get paid. Either the airport has been dragging their feet or GC on final costs and we’ve been hounding the GC to put more pressure on the owner as this is ridiculous they terminated the project and now we all are bearing the cost of tons of money in material unpaid and getting screamed at by suppliers whose patience is running thin. Finally to the root of the issue. they notified us last week they were going to run checks and send out bond waivers. Ive not looking forward to this process as I knew it’d be a fight. Sure enough they send me an unconditional final waiver for my suppliers to sign and state they will need that in order for us to receive payment. I tell them there’s no way suppliers are signing off on an unconditional final waiver without having some proof of payment given the situation and we are definitely not going to pay them out of our own account before we get paid, however we can do a conditional final waiver with the conditions being upon receipt of payment and clearance of check xxxx. They came back to us with the same stance and said the CEO wants unconditional final waivers from your suppliers before we can release payment. We didn’t respond as we were deliberating on the best way to do this and also about the suppliers reduced invoices to us as we didn’t want to disclose they reduced their invoice to us after the final price went in for approval. Our accounting advised us the suppliers could put $10 on the waiver as we do for some projects. The GCs closeout rep then sent an email before we agreed and said how about if I request joint checks, and listed the supplier amounts out they had from the backup. Obviously, that would not work for us because the closeout invoice from suppliers was now reduced. I declined and was vague stating that we ate the tax and some costs on things and had to work it out with our suppliers, I think the best thing to do is a normal release and you all issue the check for the final closeout costs from the approved final pay application. They responded ok. Later today they send an email stating that check xxxx for the amount of xxxx will be available Monday afternoon for mail upon receipt of : Final unconditional waiver from us and they have the entire revised new contract amount listed. And then final unconditional waiver for suppliers with explicit instructions that say... Waivers must be for exact amount paid for the entire project and need to match the amounts submitted to airport for the final termination change order. .... so here we that one little sentence has us paralyzed on what to do. We counted on paying suppliers for their new reduced invoice to us and truly need that to make this whole ordeal at least a few points in the black for us. I don’t know what to do. I see 3 options. 1. Get the waivers, Pay the suppliers on their original closeout invoice and we take it on the chin for all the late added costs. 2. I tell them straight up our suppliers invoices are now lower because we had to work incurred costs out with them that we were supposedly not allowed to add or were too late on. 3. The best option if it is legal. Get the suppliers to sign off on a waiver for the original closeout invoice cost and GC and airport will never know the wiser. 3 is what I want to do if able. A. I don’t know if that’s legal to do. B. Does the GC even have a legal right to demand that? I assume they are explicitly wanting the actual payment made because either the airport has told them to do that since this was a termination and they were counting beans over the closeout costs. OR the GC knows what we’re trying to do and is wanting a way to do extract that extra profit from us. If we can’t legally put the suppliers incorrect older amount on the waivers; maybe I am just ignorant to laws I’m unaware of But I do not understand why it would matter or not if the suppliers were paid the exact amount as provided on the closeout invoices if they are signing off on an unconditional waiver. Also the bottom line price is not increasing to the GC or airport it’s just shifting within our circle of 2nd tier and supplier and everyone. If anyone would have any heartache over that it would be the airport because they might think they overpaid for cancellation/ restocking of items they are not getting. On a personal note, screw them for what they have put contractors through on this. They made one of the most asinine decisions by terminating before evaluating the costs. They’ve cost tax payers millions by doing this due to all the wasted and unusable material. Then they wanted every penny back from contractors, demanded we deliver about 500k of material to site but have taken months to even approve final payment for the cancellation of the project while all of us are left holding the burden of invoices piled to the sky and a huge loss in revenue since we now have no work while we scramble to pick up contracts we would have otherwise been bidding and scheduling out. Ethically, from our view that extra profit we are taking from the supplies revised invoices is justified and fair. But... that does not mean legal. I respectfully request your expert opinion on this situation.

1 reply

Sep 26, 2020

Honestly, your factual summary is much too complicated for a simple answer on a forum such as this. You need to sit down with an experienced construction attorney and go over all the facts then develop a plan of action.

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