A Lifeline for Contractors Abused by NY Government

It’s getting near the end of the project from Hell.

“This government contract is going to be my last,” you tell yourself.

Just about everything went wrong, the Government engineers and contracting officers were unresponsive, rarely available, and when they did communicate with you, they were totally unreasonable, real jerks.

Then to make matters worse, one guy from the Government made it his purpose in life to make things difficult for you, to make sure, it seemed, that you didn’t complete the job. He wanted you to fail, quit, or breach. He would interfere with your project managers, undermine you at job meetings and refuse to cooperate with you regarding minor accommodations, like finding a place onsite to store materials. Plus your union gave you trouble. Suppliers made deliveries late. There were design errors, work sequencing issues, subcontractor incompetence. The list goes on…

But you persevered. You racked up all kinds of additional costs that ate up your profit margin. You completed the job—at a loss. You met your commitment to the Government and fully performed your contract obligation to build a road, erect a convention center, wire IT infrastructure, develop software, or whatever, but you did it at a horrible cost—in money, in other opportunities, in reputation. So you want to sue the pants off of these SOBs.

Now the Government wants to close out the contract and watch you take it on the chin. But first, of course, they drag you over the coals and make completing the punch-list such a miserable experience, all you can think about is being done, getting your men and women and equipment out of there, off the jobsite, and onto more profitable work. And while you’re thinking all this, when you literally can’t wait any longer to be done, the Government offers you “final payment.”

As you look at the check and the paperwork that goes with it, a thought creeps into the back your mind—a conversation you may have had with a lawyer-friend, or a contractor who has been around the block.

You think, “If I accept final payment, am I losing my right to claim additional money for the extra work and delay costs that have buried me on this job? Am I losing my right to sue? After the disaster this job has been, I need this money to stay afloat. Should I take it? Do I accept final payment?”

In the common law, which is made from the decisions in prior court cases, there’s a rule called “accord and satisfaction.” That law says, basically, when you have a dispute with someone who owes you money, and that someone partially pays this debt to you, and you accept the partial payment, deposit the check, that someone can argue that you accepted his partial payment in full satisfaction of the greater debt he owed. Sometimes a savvy debtor will even write “payment in full” discretely somewhere on the check to drive the point home and lock in this defense against further payments.

There are some legal tricks a creditor can employ to avoid this pitfall, like writing “under protest with full reservation of rights,” on the back of the check prior to depositing it.

But remember, this is a big Government contract with all sorts of close out paperwork that you must sign as a condition to receiving final payment—paperwork that attempts, perhaps, to absolve the Government from any responsibility for your damages. Little tricks of the legal trade like those mentioned above, performed in the context of routine bank transactions, may not be much help.

If you’re in New York, here’s the law that WILL help.

“No provision contained in a construction contract awarded by any state department or agency shall bar the commencement of an action for breach of contract on the sole ground of the contractor’s acceptance of final payment under such contract provided that a detailed and verified statement of claim is served upon the public body concerned not later than forty days after the mailing of such final payment. The statement shall specify the items upon which the claim will be based and any such claim shall be limited to such items. Any provision of subdivision four, section ten of the court of claims actto the contrary notwithstanding, an action founded upon such statement of claim shall be filed within six months after the mailing of the final payment. No payment to the contractor shall limit or qualify any defense, claim or counterclaim otherwise available to the public body relating to the contract involved.”

Get it? The law allows you as contractor to accept final payment from the Government without losing your right to sue, SO LONG AS, you file the required Statement of claim. You will lose your rights under this law just as easily as you got them if you forget to provide the detailed and verified Statement of claim NOT LATER THAN FORTY DAYS after the mailing of final payment. We cannot over-emphasize the importance of providing this Statement on time. Failure in this regard would mean death to your lawsuit—a fatal blow. Game over.