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  • Question

    Can you withhold final payment of a completed construction project if there is a current appeal for a claim being worked? What about a claim in general, without the appeal?


    Answer

    If your construction contact is a FFP it will contain the clause FAR 52.232-5. 

    FAR 52.232-5 Payments under Fixed-Price Construction Contracts states:

    (h) Final payment. The Government shall pay the amount due the Contractor under this contract after-

               (1) Completion and acceptance of all work;

               (2) Presentation of a properly executed voucher; and

               (3) Presentation of release of all claims against the Government arising by virtue of this contract, other than claims, in stated amounts, that the Contractor has specifically excepted from the operation of the release. A release may also be required of the assignee if the Contractor’s claim to amounts payable under this contract has been assigned under the Assignment of Claims Act of 1940 ( 31 U.S.C.3727 and 41 U.S.C.6305).

    If you have accepted the work, taken control of the building and occupying, you have definitely satisfied (1) above.  Have they invoiced??  If yes then (2) above is satisfied.  All you have left is (3). 

    The contractor has to sign a release for this to be a final payment.  However, before a contractor signs any release or waiver they can identify any potential claims that they do not want to waive.  The contractor may state a specific claim reservation in the waiver.

    The Government cannot predicate final payment on a release of the contractor’s claims. However, a contractor’s outstanding claim(s) must be excepted from the contractor’s release.

    In the Matcon Diamond, Inc. vs the United States of America, the ASBCA has general relied upon its precedent that “[a] final release followed by a final payment to a contractor generally bars recovery of the contractor’s claims under the contract except for those excepted on the release.”

    The following is an excerpt from the Matcon Diamond, Inc. vs the United States of America case:

    “The government's final payment defense is an affirmative defense on which it bears the burden of proof. See Electro-Technology Corp., ASBCA No. 42495, 93-2 BCA ~ 25,750 at 128,133. Final payment to the contractor bars claims which are submitted subsequent to the final payment. Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987). However, final payment does not bar a claim where the contracting officer knows that the contractor is asserting a right to additional compensation, even though a formal claim has not been filed. JT Construction Co., ASBCA No. 54352, 06-1BCA~33,182 at 164,464; Navales Enterprises, Inc., ASBCA No. 52202, 99-2 BCA ~ 30,528 at 150,757.”

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