In my February 2006 column, I wrote about waiver under Texas law and how contracting parties may intentionally, or unintentionally, waive their rights. In Addicks Services Inc. vs. GGP-Bridgeland LP, a recent case decided by the Court of Appeals for the Fifth Circuit, the court applying Texas law made a powerful statement about the importance of waivers and releases used in construction projects. The court ruled that a contractor, who had submitted several change order requests during the project, waived and released such claims by signing interim waivers submitted with its progress payment requests that unambiguously released any outstanding claims for payment of extra work performed before the date of each interim waiver.
As I have also written, Texas courts strongly favor contracts and written agreements. This case is important for contractors and subcontractors who routinely sign form documents without first carefully considering the document. Parties in the construction industry often use form lien waivers and down-date waivers as part of the payment process. Forms, however, can create a false sense of security or cause a person to exercise less caution than he or she otherwise might.
In the Addicks case, by simply submitting a request for payment that included a broad waiver of claims, the contractor lost its right to pursue potential change orders even after it had placed the owner on notice beforehand of such claims. The lesson is clear: Be careful what you sign. Read the document first and make sure you understand it; if necessary, consult your lawyer.
In Addicks, performance under the excavation and grading contract was to be paid in monthly progress payments. To get paid, the contractor had to submit a written application for a progress payment along with an executed lien waiver (or interim waiver) that would release the contractor's mechanic's and material-man's lien on the project as of the date on the or interim waiver. The interim waiver also included the following broad waiver and release language: "[Contractor] specifically waives, quit claims, and releases any claim for damages due to delay, hindrance, interference, acceleration, inefficiencies or extra work or any other claim of any kind."
During the project, the contractor submitted several change orders for necessary additional work and changes to the contract scope and price. While many of the change orders were pending, the contractor submitted applications for progress payments and executed the interim waivers. While these provided a space to list any claims not released, the contractor never listed any claims for extra work in this space.
The court rejected the contractor's arguments:
- That the owner would not allow it to include additional work on the payment applications unless such additional work was reduced to a written change order. The court concluded that if the contractor wanted to exclude the extra work performed from being released, it could have done so by listing such claims on the interim waiver.
- That the lack of a final waiver meant that claims for extra work could not be released through Interim Waivers. The court rejected this argument because the interim waiver provided blank space to note any additional work the contractor wanted to exclude from the release.
- That the owner waived its right to rely on the interim waivers by later negotiating with the contractor for extra work, issuing change orders and paying some of the claims even though an interim waiver had previously been executed. This argument failed because the owner followed each payment for extra work with an interim waiver releasing the claim, which was consistent with the contract's provisions.
- Be on the lookout for release and waiver language contained in form documents. Many contractors use variations of the AIA Application and Certification for Payment form to process progress payments. Be careful if you are asked to use the AIA form and it was modified to add broad release of claim language. The best practice is to include a copy of each form as part of the contract or subcontract.