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Should I accept partial payment of a pay application from GC after placing a bond claim?

TexasLien WaiversPay Applications

I filed a Texas bond claim for the amount of $20,996.00 for payment application #3. The GC reached out to me and offered me a check for $5,000.00 for PA#3 and for me to sign a conditional lien waiver on progress payment to release the check to us and once we deposit the check the GC wants a unconditional on progress payment. Since our pay app #3 was for $20,996.00 and not for the $5,000.00, should we accept the $5,000.00 and wait for the rest of the amount? Or should I not accept the check for $5,000.00 and let the GC know that we will only accept a check for the correct amount of $20,996.00 that we billed for pay app #3?. I'm scared that our bond claim voids or cancels if I accept the $5000.00 and lose out on the remaining balance the GC owes us.

2 replies

Oct 9, 2020

I can't tell from the facts as described whether the GC is forcing you to waive the remainder of your claim in return for payment of the $5,000, but it certainly sounds like it. If you have a valid bond claim, then your in a very strong negotiating position, but politics and ongoing business decisions between subs and GC's are rarely simple, so I hesitate in providing advice regarding whether or not to take the settlement unless I have a better understanding of the situation. I can tell you that if you do sign a lien waiver for PA#3, the surety will not pay you for anything above the $5,000 that you recieved for PA#3. 

This is complicated, so don't hesitate to reach me directly if you'd like. However, please understand that my office is not affiliated with LevelSet and is a separate practice. 

Very best,

Ben House

281-762-1377

ben@houseperron.com

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Oct 9, 2020

Accepting a check for less than what you're owed is generally not a good idea. If you've set up a payment plan with your customer (or the GC), then that might be a less frightening proposition when you know the remainder of the check is coming. So, if that's how they want to proceed, then getting them to put the payment plan to writing would be a good idea to make sure they're serious and that everything will be on the up and up.

In any event - be sure to inspect any check to make sure that it's not going to interfere with your ability to force full payment. For instance - if the check states that it's a final payment, or if the check indicates it's full payment for the pay app, then a claimant could have trouble forcing the customer to pay the full amount that's owed. More on that here: Are Checks with “Payment in Full” in Memo Line Legally Binding? Do They Affect Mechanics Lien Rights? 

Now, regarding waivers - it's important to not waive more than you intend. A conditional waiver that states $20,000 is being waived won't be effective until the $20,000 is received. So, conceivably, providing a conditional waiver to a customer who's only making partial payment might not be all that risky. However, if an unconditional waiver is given for more than what's actually been received, then that unconditional waiver could permanently waive more than what's intended. So, it's important to be extremely detail-oriented when considering unconditional waivers. For additional discussion: Unconditional Lien Waivers vs Conditional Lien Waivers.

You can read more about what to look out for when submitting TX lien waivers, here: (1) Texas Guide: Partial Conditional Lien Waiver & Release; and (2) Texas Guide: Partial Unconditional Lien Waiver.

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