In most construction projects payment releases, both partial and final, are found at all levels, owner - general contractor, general contractor — subcontractor and subcontractor — sub-subcontractor.
The primary reason for either a partial or final release is to acknowledge payments received, whether periodic or final. However, in many instances releases do far more than acknowledge payment and often contain language that may result in a party relinquishing claims or monetary amounts, conflict with statutory provisions, or add obligations that didn’t exist under the contract or subcontract.
At the subcontractor level, an example of a troublesome partial release is a release that states that the payment by the general contractor to the subcontractor is full payment through the date of the release, or that the subcontractor is releasing the general contractor from all claims for work completed as of the date of the release. This language does not clearly differentiate between the amount of the periodic payment being made and other amounts due or that may become due such as retainage, payment for contract work in progress, which is not included in the periodic payment, completed extra work on pending change orders and potential claims for disputed extra work and delay. The only way to assure that there is no future dispute as to what work the payment and partial release cover is to include a specific exclusion for retainage, payment for work in progress and not requisitioned, pending change orders and any other pending or potential claim.
Another example of a troublesome partial release is a release that waives lien and/or bond rights. Even though waivers of lien may be controlled by statute and such waiver may be void as a matter of law, the prudent subcontractor should make sure that the language relating to waivers of lien and/or bond rights relates only to payments that the subcontractor actually has received and is not a waiver of any lien or bond right as to payments that are not yet due and payable.
As to final releases, most acknowledge payment for labor, material and equipment furnished for the project. However, many releases contain additional language that may release the general contractor from “all claims”, which could include a future claim for negligence by a third party that is covered by insurance. Also, many final releases contain 1) indemnity clauses as to all third party claims and 2) representations by the subcontractor as to payments by the subcontractor to third parties, both of which can go far beyond an acknowledgment by the subcontractor of payments received and may add obligations that are greater than the obligations contained in the contract documents. Any subcontractor should make sure that the language in the release does not create additional liabilities.
A subcontractor desires to receive payment as fast as possible from the general contractor. However, the subcontractor should make sure that it does not relinquish its rights to additional payments, claims or lien and/or bond rights and that the release does not create obligations that vary or add to existing contractual rights and obligations. These principles apply across the board and should be kept in mind by general contractors, subcontractors and sub-subcontractors who execute releases in exchange for payment.
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