By: Thomas S. Tripodianos Published: December 2014

Subcontractors' Claims Timing

Question. Are Subcontractors' claims time barred despite the issuance of HUD reports providing that GC ceased work on the project a year earlier but it was undisputed that GC continued to oversee, and the subcontractors continued to perform, work on the project?

Answer. Maybe.

The instant actions arise from a general contractor's alleged failure to pay two subcontractors, Subcontractor1 and Subcontractor2 (collectively, the "Subcontractors"), for work that they performed on a multifamily housing project. Subcontractors seek to collect the unpaid amount from the general contractor, as well as Surety which issued a payment bond in connection with the underlying project.

Surety contends that Subcontractors' claims are time-barred because they failed to commence these actions within one year of the date of completion of the contracted-for work, the limitations period set forth in the payment bond.

The Construction Contract defined "[t]he date of final completion" as "the date the HUD representative signs the final HUD Trip Report provided that the Trip Report is subsequently endorsed by the Chief Architect." The Construction Contract also required GC to "correct any defects due to faulty materials or workmanship which appear within one year from the date of final completion."

Finally, the Construction Contract indicates that "the Contractor shall furnish to the Owner assurance of completion of the work in the form of…100 percent Performance and Payment Bond.".

Pursuant to written subcontract agreements GC hired Subcontractors as subcontractors to assist with carpentry related services for the Project.

Surety, issued a payment bond on behalf of GC, as principal, in favor of the owner of the Project, the Owner, as obligee (the "Bond"). The Bond was issued for the "use and benefit" of claimants supplying labor and materials for the Project; in essence, the Bond ensures that GC properly pays its subcontractors and suppliers. The Bond defines a "claimant" as "one having a direct contract with the Principal or with a subcontractor of the Principal for labor…used or reasonably required for use in the performance of the contract."  Pursuant to the Bond, every claimant "who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimant's work or labor was done or performed…may sue on this bond for the use of such claimant."  Importantly, the Bond requires that all claims brought thereunder must be initiated within one year after GC, the Principal, "ceased work" on the Construction Contract.

On December 9, 2010, it is undisputed that, HUD issued the "HUD Representative's Trip Report" (the "Trip Report"), which states as follows:

CONTRACTED WORK IS 100 percent COMPLETE WITH NO PUNCH LIST ITEMS.

THERE ARE NO ITEMS OF DELAYED COMPLETION.

WORK PERFORMED IN A SATISFACTORY WORK-LIKE MANOR [sic].

ALL UTILITIES ARE COMPLETELY INSTALLED, CONNECTED, OPERABLE AND SAFE. ALL FACILITIES FOR INGRESS AND EGRESS ARE IN PLACE.

The "scheduled progress" and "actual progress" boxes on the Trip Report form contain the value "100 percent."

On December 10, 2010, the Project Architect, issued a Certificate of Substantial Completion. The Certificate of Substantial Completion defines "Substantial Completion" as the stage when the contracted-for work "is sufficiently complete in accordance with the Contract documents so that the Owner can occupy or utilize the Work for its intended use." On its face, the Certificate of Substantial Completion covers the "Full Project," and states that the "applicable warranties required by the [Construction] Contract Documents" commence on the date of its execution. The Certificate of Substantial Completion further states that:

“A list of items to be completed or corrected is attached hereto. The failure to include any items on such list does not alter the responsibility of the Contractor to complete all Work in accordance with the Contract Documents. Unless otherwise agreed to in writing, the date of commencement of warranties for items on the attached list will be the date of issuance of the final Certificate of Payment or the date of final payment.

Cost estimate of Work that is incomplete or defective: $0.00.

The Contractor will complete or correct the Work on the list of items attached hereto within Zero (0) days from the above date of Substantial Completion.”

The Certificate of Substantial Completion has no attachments. Finally, the Owner signed the Certificate of Substantial Completion, thereby "accept[ing] the Work or designated portion as substantially complete." Id.

According to GC, as of December 2010, GC was entitled to payment of the entire Contract balance, save for a five percent retainage that the lender was holding because HUD had not finally endorsed the Owner's mortgage loan.

It is uncontested that Subcontractors performed work on the Project in 2011. The critical dispute between the parties concerns the nature of the work performed after December 2010: Surety characterizes such work as entirely remedial, and maintains that the work called for by the Construction Contract was "100 percent complete" as of December 2010, whereas Subcontractors contend that work performed after December 10 was work called for under the contract and subcontract, including "punch list work."

"'[P]unch list' work" is "work called for by the original contract (or subcontract) which the contractor (or subcontractor) has not satisfactorily completed."

Surety bears the burden of showing that the limitations period had expired before Subcontractors filed their action. New York courts construe bonds like any other contract in order to determine the parties' rights and obligations thereunder

Here, the Bond provides that the applicable limitations period starts the moment when GC, the principal, "cease[s] work on said Contract," i.e., the Construction Contract. In this context, New York courts define cease work according to its plain and ordinary meaning — when labor ceases. Given that the Bond defines claimants to include subcontractors — i.e., the subcontractors are third-party beneficiaries of the Bond — and given that the subcontract work on the Project was derivative of work called for by the Construction Contract, the phrase "work under said Contract" includes work called for by the Construction Contract as well as the subcontracts entered by GC.

The Construction Contract defines its "date of final completion" as the date on which the HUD Representative signs the final Trip Report, provided that the Chief Architect endorses it thereafter. It is undisputed that the HUD Representative signed, and the Chief Architect endorsed, the Trip Report by December 10, 2010. It is also undisputed that the Trip Report specifies "100 percent completion" of contract work with "no punch-list items" and "no items of delayed completion.” The December 2010 Certificate of Substantial Completion similarly indicates the absence of punch list items, and certifies that the Owner could occupy the premises for their "intended use."

However, it is likewise undisputed that GC continued to oversee, and subcontractors continued to perform, work in 2011. Surety argues that the work performed on the Project in 2011 was entirely remedial, and therefore does not affect the limitations period, which started running in December 2010.  Subcontractors contend they were still performing contract work.

As there is a question of fact a determination if Subcontractors’ claims are time barred cannot be made.

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