Thinking of Walking Off the Job? Always Think Twice

Construction and Procurement Law News, Q3 2016

Firm Alert

Author(s)

A recent case from the federal district court for the Eastern District of Pennsylvania demonstrates the potential perils of walking off a job due to non-payment. In William C. Cox, Inc. v. Total Site Improvements, LLC, a general contractor and a subcontractor entered into two subcontract agreements totaling over $790,000. The subcontractor agreed to supply sufficient materials, workers, and equipment to maintain the progress of the work and to refrain from damaging, delaying, or otherwise interfering with the general contractor’s work. In return, the general contractor agreed to pay the subcontractor within 45 days from receiving an invoice, as long as the owner had paid the general contractor for the invoiced work. The contract explicitly stated that time was of the essence.

At the beginning of the project, the general contractor advanced two large payments to the subcontractor for work that was yet to be completed. Thereafter, the general contractor paid the majority of the subcontractor’s February invoice and March’s entire invoice. By June, however, there were overdue invoices and the delay in payment allegedly hindered the subcontractor from buying materials. The subcontractor requested payment for four overdue invoices. The general contractor told the subcontractor that it was expecting a payment from the owner in two weeks, and that the subcontractor would be paid at that time. Just four days later, however, the subcontractor stopped work, left the project site, and refused to explain its absence to the general contractor. At the time the subcontractor walked off, it had completed just over $191,000 worth of work, and the general contractor had paid it just over $187,000 for the work completed. As such, the subcontractor was out roughly $4,000 at the time it ceased work (without regard to the payment provisions of the subcontract).

After the general contractor received payment from the owner, the general contractor contacted the subcontractor in an attempt to set up a meeting. The subcontractor declined the invitation. In response, the general contractor sent the subcontractor a notice of termination, followed by a letter of cancellation of the subcontracts.

The Court was unimpressed by both parties’ behavior and efforts to resolve the matter. Specifically, the Court believed that the general contractor could have paid the subcontractor the money it was owed when the general contractor received payment from the owner. This payment might have encouraged the subcontractor to return to the project. The Court also disliked the subcontractor’s lack of responsiveness to the general contractor’s attempts to resolve the payment dispute.

Ultimately, the Court found that the contract did not allow the subcontractor to abandon the job due to delayed payments and that the subcontractor could not expect to be compensated for past due invoices when it was refusing to respond to the general contractor’s communication attempts. The Court held that the subcontractor breached the contract first, by walking off the job when only a “nominal amount [was] owed.” The subcontractor’s subsequent refusal to communicate with the general contractor further justified the general contractor’s failure to pay the subcontractor for amounts owed. Although the Court found that the general contractor owed the subcontractor right around $134,000 for work completed, this amount was offset by the $307,000 the subcontractor owed the general contractor for excess costs, overhead and profit markup, delay costs, and attorney’s fees.

This case demonstrates the importance of knowing your contractual remedies and rights when delays occur, and demonstrates how choosing to abandon a project for non-payment can have negative consequences under certain circumstances. Contact legal counsel prior to stopping work to consider thoroughly the basis for and the potential consequences of abandonment.