Dangers of Release / Waivers
Contractors should handle all Release / Waiver forms received for payment, and the Release terms of Change Modifications received, like Hazardous Materials! Know what you are releasing, and know what exceptions you need to include before executing. You can thank me later!
Over the course of their projects, standard industry practice requires Contractors sign “Release / Waiver” forms for receipt of payments, and execute change modifications that often include "accord and satisfaction" release / waiver terms. Unfortunately, many contractors do so without understanding the risks and consequences, often treating Release / Waiver forms and Change Modifications as more or less routine administrative documents to be signed and processed, in the mistaken belief they have no choice but to sign these forms as presented. Wash, rinse, repeat! That is a dangerous misunderstanding--one that will sooner or later become a hard lesson learned.
When presented with any Release / Waiver form for payment, or Change Modification for execution, contractors must first and foremost understand the scope of release and waiver. In other words, contractors need to question: What rights are being "Released" and "Waived" by the terms and conditions provided, and does it have any reason or cause to include exceptions and a reservation of rights to Claim? The correct answer may surprise you!
The objective of the party issuing the form is to obtain "release of lien" and "waiver of claim" protections. A 'lien release' protects the Owner / Property; a 'waiver of claim' protects against a claim by a general contractor to the owner, or subcontractor to the general contractor, determined by the contract relationship at hand. Although release / waiver language can vary, most often it attempts to be all-inclusive and written in the form of an "accord and satisfaction" release, meaning, in consideration of the transaction at hand (i.e., receipt of payment or execution of a change mod) the signatory gives up all rights to claim and all impacts up to the date of signature acceptance.
Executing any Release / Waiver form without proper understanding of what you are releasing and waiving, and the consequences of doing so, is business malpractice. These forms modify your contract agreement, and should be considered the 2nd most important documents contractors will process after the Contract or Subcontract itself.
TIP: All Release / Waiver forms and Change Modification release language are suspect. Get legal advice before signing. Insert appropriate "exceptions" as apply, and reserve your claim rights. If not, you risk losing those rights, and will face an uphill and costly battle should you later attempt to seek equitable recovery via a request equitable adjustment (REA), claim or litigation.
Owners and general contractors have a right to certain contractual and legal protections in exchange for payments rendered, or change modifications executed. However, the typical release / waiver language provided for those transactions invariably seeks far more protection than is reasonable and warranted for the transaction at hand. Why release your rights to claim for anything not specific to the unambiguously stated and necessary basis needed to process the progress payment or change modification under consideration? The answer is, you should not!
Whether a specific Release / Waiver clause will undermine a potential claim later on depends on the release language itself, the jurisdiction, specific claim situation and legal theories as apply. But why take the chance? Release / Waiver language will modify the contract agreement and critical rights otherwise provided, and must be handled with care, with guidance from a construction attorney, in full awareness and context of the contractor's project situation. Since jurisdictional laws vary on the treatment of lien-waiver clauses in Contracts, and on the status of release / waiver language itself, seeking counsel from a construction attorney specific to the project and jurisdiction, before executing any of these documents, is simply good business practice.
Wolves in Sheep’s Clothing
Release / waiver forms and release / waiver clauses only seem to be innocuous, typical and standardized. They are not! Given the modification of contract and release of rights consequences involved, they are far more than that.
Payment release forms and Change Modification release terms modify the contract agreement, negating rights otherwise held under the contract and law.
By default, although the language may vary, they extract an admission that there are no disputes, issues, events, or causes (known and unknown) to claim, up through the date of the release / wavier execution.
They most often present an “accord and satisfaction” release, meaning the parties have a "meeting of minds" agreement, and the signatory acknowledges it has no disputes or causes to Claim; releases the other contract party from liability and releases its right to claim through the executed date of the release / waiver.
Signing release forms for payment or change mods without taking "exceptions" to the terms of release, will eventually prove costly. No contractor should give up contractual and legal rights beyond the specific parameters and necessity of the transaction at hand. An "accord and satisfaction" release / waiver should only be signed at the time of 'Final Payment" and "Final Release", when a contractor's work is 100% completed and accepted, its final payment with all retention monies are 'conditioned' to be made, and the contractor has no cause to Claim. Otherwise, all other Release / Waiver forms and Change Modification release terms should be viewed as administrative “Hazardous Materials” and handled with care for the duration of the project!
Accord & Satisfaction (Really?)
Frequently, release / waiver terms are in the form of an “accord and satisfaction” release. Accepting any "accord and satisfaction" release without exception means the contractor likely releases and waives its rights to claim for delay, disruptions, and most impact issues and events (known and unknown) as may exist up to the date of execution of the payment release or change modification. In consequence, if a contractor has an ongoing dispute and/or ongoing and unresolved change impact, even for an issue upon which written notice has already been made to the other party in compliance with the Contract, signing release waivers for payment or for a change modification likely jeopardizes those rights. That is a big thing to give up for essentially nothing in return!
The True Cost of Change Modifications
Contractors must also be especially wary of the often broad release language found in bilateral Change Modifications (bilateral" simply means accepted and signed by both parties). It is also important to understand that Change Modifications are usually priced and executed upon the estimated, "foreseeable" direct costs + allowable markup of performing the Change work itself, and whatever time extension, if any, is provided to do the change work. But, the actual cost of "change" is always more than that!
Cost and time impacts to ongoing "unchanged work", and the "unforeseeable" indirect costs and cumulative impact costs of these modifications to the unchanged Contract work, are typically not considered or included in the pricing of Change Mods. Further, the common release language of Change Modifications operates to negate a contractors recovery of such impact costs, and any indirect and cumulative impacts as may arise. Consider the extent of accord and satisfaction release a Contractor is giving up in the following release language variants under Federal Contracts, typically included in federal contract Change Modifications:
In consideration of this modification agreed to herein as complete and equitable adjustment for the Contractor, the Contractor hereby releases the Government from any and all liability under this Contract for further equitable adjustments attributable to such facts or circumstances.
In consideration of the modification agreed to herein, the contractor hereby releases the Government from any and all liability under this modification for further equitable adjustments attributable to such facts or circumstances giving rise to these changes. All other terms and conditions remain unchanged.
This Modification includes all costs associated with the work of the modification in full accord and satisfaction, including all direct, indirect, and impact costs on unchanged work such as, disruption, delay, cumulative impact and acceleration.
From the Government, Owner or General Contractor perspective, as the case may be, "accord and satisfaction" release-waivers are great! The undersigning party to a change modification containing such broad release terms, is agreeing to give up its rights to any further equitable adjustments! That is a HUGE thing to give up. Unforeseen conditions, unreasonable and damaging acts by the other party, and cumulative disruption and delay impacts as may exist, or as can easily result from change modifications, especially after multiple modifications, are most certainly not priced by the contractor into those modifications. Nonetheless, that contractor is giving up their right to recovery should recovery be needed later on.
Contractors should carefully consider the release forms they are signing, and always reserve their rights to claim for equitable adjustment upon any outstanding, unresolved change, differing condition, or impacting situation as may be known, and at the very least, for currently unknown, unforeseen issues and events and cumulative impacts.
The Form of the Release Matters!
Release / waiver forms come in two primary flavors: “unconditional” and “conditional”, which are then issued as either "Progress" or "Final" versions. An “unconditional” release / waiver means the executing party gives up various rights through the date specified, with no exceptions, in exchange for payment, whether payment is actually provided and “clears”, or not!
A "conditional” release / waiver means the executing party gives up its various rights through the date specified, (unless exceptions and reservation of rights to the contrary are taken), however, release is conditioned upon actual receipt and clearance of payment. The “conditional” release and waiver becomes effective only once the payment is received and clears, and is therefore, the safer version. “Unconditional” releases are inherently dangerous.
“Exceptions” & Preserving Rights
Progress Payments: If the progress payment release / waiver form includes an “exceptions” section (and all “reasonable” versions should), then by all means, insert your exceptions including a reservation of rights to claim for any currently known and unresolved issues, and for "unforeseen and cumulative" impacts. If the form does not provide for “exceptions”, then insert one of your own, and cross out any language contrary to your assertion of rights.
Sometimes the party providing the Release Form may refuse to make payment because you altered their release language, and more often than not, general contractors will adamantly oppose any alterations by subcontractors. In that case, you still have options to reserve your rights.
Make Your Case! No doubt you want to get paid, and any delay in payment may put a small contractor in a financial bind. However, that does not mandate a contractor acquiesce and sign on the dotted line. Make your case!
First, you are being paid only for the work you completed and they accepted, and that should be the full basis upon which the Release / Waiver is constituted. It should not require you to release your rights to Claim for any outstanding, unresolved or unknown impacts you are incurring, or as you may discovered later to have incurred, through the date of the pending release / waiver.
Second, you should have no problem agreeing that you have and will make the proper pro-rated share of the payment pending in fulfillment of your own subcontract, vendor and legal obligations. That is, you have and will pay your subcontractors and vendors up to the date of the Release / Waiver as executed, accept full responsibility, and agree to provide the other contract party the appropriate release / waiver in kind.
Third, if you have known, ongoing disputes, or constructive changes, or ongoing change negotiations, upon which you have already provided the other party written notice, you have every right not to give these up, and must insist they are excepted from the release waiver.
Still, if those arguments fail, and you cannot hold out any longer for payment, consult with an attorney experienced in these matters (Not all attorneys are!). Your attorney may convey that the next best approach is to go ahead and execute the form, but to do so "Under Protest" (and state that in writing to the other party). Your attorney may advise you to attach a separate page on company letterhead to the Release / Waiver form, with the “exceptions” and reservation of rights you are taking to date, and to sign it. However, whether this approach ultimately has legal merit remains to be seen. That is why it is important to get knowledgeable counsel from a construction attorney on how best to respond specific to your contract / project situation. Release-Waivers are that important a document!
Remember, most progress release / waivers seek to obtain a broader release of rights, beyond what is required by the transacted basis of the actual payment to be made or modification to be executed.
Change Modifications: Contractors need to know that they are not legally required to "bilaterally" execute a Change Modification. In other words, they cannot be compelled to perform Change Order work that also compels them to agree to and execute a Change Modification as presented. If the terms of the Change Modification are not acceptable to the Contractor, then it does not need to execute the Modification as presented, and in federal contracting for instance, the government Contracting Officer (KO) can instead either allow changes to the release terms, or issue the change as a "Unilateral Modification" (which is federally contracting the KO has a right to do).
At least under a "Unilateral Modification" the Contractor demonstrates it does not have a "meeting of minds" agreement and acceptance of the release terms and conditions it did not want to accept, and in turn, legally retains its rights to equitable adjustment and Claim. Remember, a contractor does not need to, and should never sign a Unilateral Modification (that is why it is called "Unilateral"). In addition, contractors should seriously consider their options before executing any bilateral modification that does not allow for alteration or "exceptions". The following federal government release, typically included in change modifications, may seem innocuous on its face--but it is not:
"In consideration of the modification agreed to herein, the contractor hereby releases the Government from any and all liability under this modification for further equitable adjustments attributable to such facts or circumstances giving rise to these changes. All other terms and conditions remain unchanged."
No one can know the full impact of any "Change Situation" at the time of execution, especially if it is a major Change, or when multiple changes are involved. There is always a chance of additional cost and time impacts and damages arising in consequence of a Change to a Project, and contractors would be wise to explicitly reserve their rights. Failing to do so can be a costly mistake!
Contractors need to understand, in full awareness and context of their project situation, what they are agreeing to release. They need to stop treating these forms as a standard administrative document and procedure, or to believe they have no option but to sign these forms as presented, unaltered. It bears repetition: Release / Waivers modify the Contract. Rights a contractor may have under its Contract can be swept away by a release waiver form up to the date of the last one was signed. Although case-specific exceptions have prevailed in the Courts, don't count on it. Courts usually uphold executed release / waivers, with few exceptions, so be mindful of what you are agreeing to release, and knowledgeable in dealing with these forms.
The following are offered merely as examples of “exceptions” language contractors may want to consider inserting into Release / Waivers. This is provided as general information only and is not legal advice, and should not be taken as legal advice. Contractors should consult with competent legal counsel on how best to handle their particular situations, and the exceptions language to be used.
Example: "Execution of this 'Partial Release' does not become effective until payment is actually received and clears. Further, the undersign's execution of this Release / Waiver is conditioned upon (1) receipt of payment in the full amount due and owing; (2) excludes outstanding retentio
n monies currently withheld and owing, and (3) reserves the undersign's rights and exceptions as written herein."
Example: "The undersigned reserves its right to claim for unforeseen and/or cumulative impacts as may exist or as may be found to exist, which are beyond its control and without its fault or negligence, and other rights provided under the contract and/or law, which rights are specifically reserved upon execution of this release / waiver form."
Example: "Requests for Equitable Adjustment or Claims, and the underlying elements, whether currently known or not, and as identified on the attached document, are not subject to, released or waived by execution of release. All rights are reserved, for receipt of payment due or modification made, owin