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A subcontractor sued the general contractor for breach of contract and quantum meruit, and also the contractor’s surety on a Miller Act claim.  What the subcontractor sought was payment for unanticipated costs incurred in constructing a federal law enforcement training center.  It alleged that it had performed additional work in reliance on oral promises that it would be reimbursed its costs.  In submitting pay requests, and certain change order requests, however, the subcontractor accepted interim and even final payments containing release language.

The subcontract was in the amount of $135,000 to replace floor tiles in the building cafeteria.  According to the subcontract, no additional amounts would be due unless the subcontractor gave the prime contractor written notice of claims and the claims were reduced to written change orders.  For each payment application, the subcontract required that a lien waiver be submitted.  And the contract had a typical clause stating that final payment would constitute a waiver of all claims by the subcontractor relating to its work.

During the time that the subcontractor was performing it was issued two change orders totalling approximately $24,000.  The sub asserts, however, that the contractor owes it an additional $75,000 for unanticipated costs incurred in reliance on oral promises to reimburse it for costs that it asserts the contractor’s operations manager authorized it to incur and said would be approved as change orders as soon as “clerical problems” in the contractor’s office were cleared up.   Following a summary judgment hearing, the U.S. District Court in the case of Artistic Stone Crafters v. Safeco Insurance, 2010 WL 2977894 (E.D. Va), granted summary judgment against the subcontractor.

In opposing the summary judgment motion, the sub argued the motion should not be granted because there were material questions of fact that must be decided by a jury.  First, the sub states that there was a factual dispute as to whether the prime knew it contested the amounts being paid despite the signed release.  This issue was quickly disposed of by the court, finding that even if the contractor knew the sub contested the amounts being paid that was not relevant since the sub signed a valid release waiving its rights.  Second, the sub asserted that there was a question of fact as to whether it was told it had to sign the waiver in order to be paid.  This, however, was not deemed an issue by the court since the contractor didn’t deny requiring the sub to sign releases.

Looking at the language of the subcontract, the court explains that it provided that “as a condition precedent to any payment … a Partial Waiver and Release of Lien” must be signed  as evidence that “all payrolls … material bills, and other indebtedness applicable to [sub’s] work have been paid.”   The subcontract also required as a condition precedent to final payment, the sub must also provide a “Final Waiver and Release of Lien.”  The sub, in fact, signed that document with its final payment request. The document provided as follows:

For a valuable consideration (in the amount of $10,593.46), the receipt of which is hereby acknowledged, the undersigned hereby waives, releases, and relinquishes all claims for labor performed, materials furnished, equipment and/ or machinery supplied and further states that no other person has any right to a lien of claim against the owner on account of work performed or for material supplied in or on any and all property owned by Tesoro Corporation … for job located at Kitchen Venthood Retrofit … Glynco, VA 31524. (emphasis added by Court).

Where language of a release agreement is clear and unambiguous, as was the case here, the agreement is controlling.  The release agreement contains two distinct waiver clauses.  The first of these waives all claims against the prime contractor.  The second waives liens against property owned by the prime contractor.  The sub’s claims fall within the waiver of “claims” against the contractor and were, therefore, waived pursuant to the waiver of claims provision of the release agreement.

Having disposed of the subcontractor claims on the basis of the release clause, the court went further and stated that the breach of contract complaint against the prime contractor must be dismissed as a matter of law because the subcontract required written change orders and no such written change order was ever granted to the sub for the work in question.  The sub argued that the oral promise of the prime contractor to pay for the costs constituted a waiver of the written change order requirement.  This was rejected by the court with the following explanation:

“Under Virginia law, contractual provisions containing written change order requirements are binding upon the parties to the contract (citation omitted).  Written change order requirements maintain order and predictability in the construction business and are mean ‘to avoid subsequent disagreement, and prevent just such a controversy as has arisen in this case.’  For this reason, ‘where there is a method under the contract by which a party can insure the recovery of the cost of extra work, that party is not entitled to recovery where it fails to follow that method.  This is a sound and logical rule.”

A final count of the sub’s complaint was based on allegation that the sub was entitled to payment on a quantum meruit theory.  This is an equitable action theory to provide relief where a party has been unjustly enriched by the labor of another.  Since the contract was valid, clear and unambiguous and there was no misunderstanding concerning the price to be paid for the work, the quantum meruit theory was determined by the court not to be available under state law.

Finally, the sub’s Miller Act claim against the surety company on the payment bond was dismissed, with the court stating that since the sub had no legitimate claim for payment against the contractor it could have not claim for reimbursement under the payment bond.   For these reasons, every count of the sub’s complaint was dismissed with prejudice.