IT’S JUST AN APPLICATION FOR PAYMENT, RIGHT?

By Curtis A. Orshoski, Esq. and Taylor T. Dolan, Esq., Lee/Shoemaker PLLC 

Like many things you may not have covered extensively (or at all) in architecture school, certifying the Contractor’s application for payment is an underemphasized but critical component of an Architect’s construction phase services. While review of applications for payment may seem like a “check the box” type of administrative task compared to responding to submittals and performing site visits, the Architect’s approval or rejection of a certification for payment has meaningful consequences. It is imperative to be mindful of those potential consequences when reviewing and acting on each application, and to recognize when it is necessary and/or appropriate to withhold approval of a Contractor’s application for payment, either in whole or in part. 

Representations to the Owner 

With each certification, the Architect makes certain representations to the Owner—but what are they, and what do they mean? 

When approving an application for payment, you’re making three representations to the Owner: 

1. the Work has progressed to the point indicated by the Contractor;

2. the Work is in accordance with the Contract Documents; and 

3. the Contractor is entitled to payment. 

These representations made by the Architect are based on (1) the Architect’s evaluation of the Contractor’s Work for conformance with the Contract Documents and (2) the data comprising the Contractor’s Application for Payment. The Architect’s certification in the standard application for payment references the “Contract Documents,” suggesting that the Architect—in fact—possesses a copy of the construction contract which defines what those documents are. 

In addition to reviewing the data comprising the Contractor’s application for payment, the “evaluation of the Work” requires site visits for the Architect to become generally familiar with the progress and quality of the Work. If regular site visits are not part of your scope of services, the prudent architect may want to consider deleting the obligation to review the Contractor’s applications for payment from your contractual scope of services or strike any language in the certification which would require the performance of on-site services. While the Owner should know what on-site services the Architect actually performed, it is not uncommon for an Owner’s recollection to become hazy (perhaps after speaking with a lawyer about how to present a claim against the Architect)—leaving the certification of the application for payment as a record that suggests the Architect’s presence on-site. 

In addition to its evaluation of the Work, the certifying Architect also represents that the Work has progressed to the point indicated, and that the Contractor is entitled to payment in the certified amount. If the Contractor contends that the Work is 75% complete, but in the exercise of your reasonable professional judgment, the percentage of completion is 50%, your approval and certification can lead to overpayments, which—if the Contractor defaults on the Project—could create budgetary challenges for the Owner as they proceed to complete the Project. While the decision to withhold approval of a certification for payment may seem extraordinary, it is at times necessary to protect the Owner. 

When to Withhold a Certification for Payment 

Even the most sophisticated Owners, including those with in-house or third-party construction or project managers, claim to rely on their Architect’s review of applications for payment before making payments and releasing retainage owed to the Contractor. The AIA A201 General Conditions of the Contract for Construction outlines several instances where an architect “may” withhold payment in whole or in part to “protect the Owner from loss for which the Contractor is responsible”: 

1. Defective work not remedied; 

2. Third party claims filed or reasonable evidence indicating probable filing of such claims (unless security acceptable to the Owner is provided by Contractor)

3. Failure of the Contractor to make payments properly to Subcontractors or suppliers for labor, materials, or equipment; 

4. Reasonable evidence that the Work cannot be completed for the unpaid balance of the Contract Sum;

5. Damage to the Owner or a separate Contractor; 

6. Reasonable evidence that the Work will not be completed within the Contract Time, and that the unpaid balance would not be adequate to cover actual or liquidated damages for the anticipated delay; or 

7. Repeated failure to carry out the Work in accordance with the Contract Documents. 

In addition to the seven instances noted above, the Architect may decline to sign an application for payment when they are unable to represent to the Owner that: 1) the Work has progressed to the point indicated by the Contractor; 2) the Work is in accordance with the Contract Documents; or 3) the Contractor is entitled to payment in the stated amount. 

Conclusion

Certifying a Contractor’s application for payment is a critical construction phase service that, when performed properly, can mitigate risk on a project. If the Architect is approving a Contractor’s applications for payment without an adequate understanding of the construction contract and without appreciating the potential significance of the representations, they should not be surprised if the Owner asks some difficult questions of the Architect. Understanding and being empowered to act when you should withhold a certificate for payment is necessary and may be the reason a challenging project is completed on time and without busting the budget.  

Curtis A. Orshoski and Taylor T. Dolan are Attorneys at Lee/Shoemaker PLLC, a law firm devoted to the representation of design professionals, in DC, Maryland, and Virginia. The content of this article was prepared to educate related to potential risks but is not intended to be a substitute for professional legal advice.

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Lee/Shoemaker PLLC is an Educational Program Allied Member of AIA Potomac Valley.