When a contractor receives a delay claim from a subcontractor, it’s important to pass on the claim to the owner or the contractor could be liable for the subcontractor’s entire claim. A recent decision out of New York underscores the importance of passing subcontractor claims to the owner.
In the case Rad and D’Aprile, Inc.v Ariel Construction Corp., the subcontractor, Rad, made a claim for delay damages to the general contractor, Ariel. Rad and Ariel entered into a liquidating agreement. In a liquidating agreement, the subcontractor asserts its claim and the general contractor “admits” that it is liable to the subcontractor –– but only to the extent the general contractor is able to collect from the owner on the subcontractor’s behalf.
The liquidating agreement between Rad and D’Aprile required D’Aprile to “accept” Rad’s increased claim of $100,000 and D’Aprile further agreed to add Rad’s claim to its own claim that would be submitted to the owner. A few months later, D’Aprile informed Rad that the claims had been submitted to the owner.
Rad regularly inquired as to the status of its claim and D’Aprile consistently said the claim was pending with the owner. Tired of waiting, Rad sued D’Aprile for the delay damages. In response to the lawsuit, D’Aprile admitted that it never submitted Rad’s delay damage claim, but also argued that Rad filed its lawsuit too late.
Interestingly, Rad had filed too late under the construction agreement. But, the court ruled that Rad had timely filed under the liquidating agreement. The court further ruled that D’Aprile as liable for all of Rad’s delay damages.
Take Away: The general contractor’s failure to submit the subcontractor’s claim after entering into a liquidating agreement made the general contractor liable for all of the subcontractor’s damages. Had the general contractor simply submitted the claim, it would have suffered no liability regardless of whether the owner accepted or rejected the subcontractor’s claim.