Georgia courts recognize a wide variety of claims which are of importance to contractors. By its very nature, the construction industry is contentious and filled with a wide variety of claims and disputes. Even the best-managed project is likely to have one or more significant disputes which may imperil the successful completion of the project.
 

In this hostile and competitive environment it is critical to know and understand your rights and obligations under Georgia law. This manual is intended to assist general contractors, subcontractors, owners, design professionals, material suppliers, and others who deal with the difficult problems encountered in the construction industry in Georgia. The materials assume a working knowledge of construction industry practice and methods.
 
 
 
 
 

1. General Principles of Contract Interpretation
 
 
 
 
 

All contracts are subject to certain rules of construction which are used by the courts to interpret and enforce the contract.
 

Contracts can be either written or oral. Both are enforceable, although the law requires that certain contracts be made only in writing. These include real estate sales contracts, contracts of suretyship, and certain other contracts.
 

A court ordinarily will enforce the meaning and intention of the parties as reflected by the contract. Parties laboring under no disabilities (illiteracy, blindness, etc.) may make contracts on their own terms, and in the absence of fraud or mistake or terms that are illegal or contrary to public policy, they must abide by that contract. The fact that the contract is unwise or disadvantageous to one of the parties is no reason for disregarding it. Yon v. City of Atlanta, 201 Ga. 800, 41 S.E.2d 516 (1947).
 

For example, if the parties to a contract enter into an express agreement setting out a pricing formula for extra work, then that contract will be enforced, even if it later appears that the contractor cannot properly document its direct costs as required by the contract. Gilbert v. Powell, 165 Ga. App. 504, 301 S.E.2d 683 (1983); Foster v. Waverly Hall United Development Corp., 159 Ga. App. 710, 285 S.E.2d 35 (1981)(failure to keep proper records may waive mechanic's lien).
 

Where a contract sets up reasonable conditions precendent to a claim or defense, the opposite party usually may assert the failure to comply with these conditions as a defense. But the courts also exist to do justice, and it has been stated that "the courts will readily seize upon circumstances arising in the subsequent conduct or transactions of the parties and imply a waiver, in order to prevent a forfeiture because of non-compliance with formal prerequisites. Biltmore Construction Co. v. Tri-State &c., Inc., 137 Ga. App. 504, 224 S.E.2d 487 (1976).
 

The court may intervene to prohibit the enforcement of illegal contracts, and under certain limited circumstances the court will exercise its equitable powers to prevent an injustice from occurring, but these exceptions to enforcement of the plain meaning of the contract are rare.
 

Where the court determines that the meaning and intention of the parties is ambiguous, the court must apply certain rules of construction in order to resolve the ambiguity. O.C.G.A. § 13-2-2.
 

For example, the courts will ordinarily construe the contract against the party who drafted the contract. This means that if the contract is subject to more than one reasonable interpretation, all other things being equal the courts will favor the interpretation of the party who did not draft the contract. O.C.G.A. § 13-2-2(5).
 

Likewise, those provisions added by the parties will control over conflicting provisions in a pre-printed form. Batson-Cook v. Poteat, 147 Ga. App. 506, 249 S.E.2d 319 (1978)(applying O.C.G.A. § 13-2-2(7)).
 

The court has the duty to construe and enforce the meaning and intention of the parties as expressed in a written contract. If the court determines that there is an ambiguity in the contract, which the court cannot resolve after applying these rules of construction, then court must submit the issue of the meaning and intention of the parties to the jury for a factual determination. Travelers Insurance Co. v. Blakey, 180 Ga. App. 520, 349 S.E.2d 474 (1986).
 

Where a contract has been reduced to writing, the courts generally will not consider "parol evidence" (i.e., oral or verbal testimony) which attempts to contradict or vary the terms of a valid written agreement. O.C.G.A. § 24-6-1.
 

Parol evidence is admissible to explain all ambiguities in writings. O.C.G.A. § 24-6-3. Fruin-Colnon Corp. v. Air Door, Inc., 157 Ga. App. 804, 278 S.E.2d 708 (1981)(reversing trial court's exclusion of such evidence introduced to explain an ambiguity).
 
 

2. Maintaining Claim Records
 
 
 

The most important part of claims administration is keeping good records. Most project administrators think that they keep good records, but surprisingly, most do not consider the fact that others will be reading these records later and attempting to reconstruct what actually occurred on the project, when it happened, who saw it happen, and explaining why it happened. The absence of records also can be a critical problem, since it leads to the inference that the claim event may have occurred due to different causes, at a different time, or perhaps may never have occurred at all.
 

As an evidentiary matter, contemporaneous project records also are important because in order to introduce the records in court, the proponent of the records must be prepared to show that the records were "business records" kept in the ordinary course of business and were relied upon in the operation of the business. If these facts cannot be proven, then the records are of limited value as evidence in a construction trial.
 

The contractor should designate at least one person to keep detailed records as the project is built. These records should be reliable and accurate records of the actual events which occurred on the job. Records which should be kept include bid documents, correspondence (particularly notices and change order correspondence), schedule impacts (weather records, late deliveries, equipment problems, etc.), contracts and change orders (including requests for change orders not approved), a daily job diary, weekly reports, scheduling records (CPM, bar charts, etc.), minutes of job meetings (tapes are good records to back up written minutes), cost records (invoices, billings, hourly labor records including labor burden), applications for payment, cancelled checks, design and shop drawings, equipment utilization reports, job cost and other accounting reports.
 

Some of the most important records for the contractor or subcontractor are estimate and bid preparation records. These records show what the contractor expected to expend in constructing the project and permit a quick review of where costs differed from those projected at the start of the project.
 

Most contractors keep their original estimate, but often do not use these records to track progress on the job. It is particularly useful for the contractor to know which job costs or units were above or below originally estimated quantities. Such records help to validate the bid and also provide the contractor with an early warning of problems.
 

Retaining estimates and bid records also help to prove that any cost overruns encountered on the project were not caused by bid errors or a bad estimate. As discussed in more detail later, the contractor's original estimate also can be used to prepare a "total cost" or "revised total cost" claims. In the absence of more complete records, a comparison of the contractor's "as planned" versus "as built" costs through the use of the original estimate and final job costs may be the only way the contractor can price a claim.
 

Every project manager recognizes the importance of project correspondence, transmittals, and notices. These records provide vital evidence of what occurred on the job and when. It is very helpful to instruct the project secretary to stamp all mail or transmittals with the date the document was received. Often, correspondence is actually received many days after the date on the letter or transmittal, and the only way to prove this later is with a date stamp showing when the document actually was received.
 

Drawings and submittals also can be critical elements of a successful claim. It is surprising how casually contractors treat construction drawings which may be the only record of design changes or errors, or which may provide crucial support for a contractor's claim of extra work. A "record set" of drawings stamped with the date of receipt and kept in chronological order is extremely helpful in reconstructing the design development of the project. If drawings are lost, damaged or become illegible then it may be very difficult to prove later exactly what the contractor was being asked to build.
 

Shop drawings also are extremely important records. Often, the contractor is required by contract to describe exactly how the work is to be installed. The approval stamp on the drawings by the architect or engineer can provide crucial evidence that the contractor's means and methods of construction were known to the owner's design professionals.
 

Shop drawings can be very important evidence of adverse impact on construction progress due to design changes or owner interference. They are important evidence of how the contractor intended to construct the project. Dates on the review stamps also can establish delay in approval or transmittal of shop drawings which may result in construction delays.
 

Construction specifications, including a complete set of all revisions to the specifications, should be retained and filed in chronological order. It also is helpful to keep a marked up master set of specifications showing exactly how any revisions to the specifications modified the original specifications.
 

It is surprising how often construction claims relate in some manner to revisions in project specifications which were not communicated or acted upon by subcontractors and suppliers. Accordingly, it is very important to retain transmittals reflecting the dates when revised specifications were sent or received.
 

Submittals and cut sheets can provide detailed product information, including product interaction, tolerances, materials properties, safety and other important data. Comparison of submittals to "as built" conditions can prove whether the product or materials meet the requirements of the contract. If a product fails, cut sheets can help to prove any express or implied warranties of the product.
 

Daily and weekly reports are critical job records. Ideally, these reports should be an accurate and complete record of who was on the job, what they were doing, and any impacts on the progress of their work by others. These records often are transmitted to others, and if they are they can be used to establish written notice of facts or job condition as of a date certain. The accurancy and completeness of daily and weekly reports is often the critical element in the success or failure of a delay claim. It should go without saying that the daily and weekly reports are no place for the project manager or superintendent's personal appointments and notes.

3. Notices & Protests
 
 
 

.1 General Principles
 
 
 

Giving notice of the contractor's position is often the critical determining factor in determining whether the claim will succeed or fail. Absent some affirmative action creating waiver or estoppel, where the contract makes notice a condition precedent to recovery of a claim, the failure to give notice bars a contract claim. State Highway Department v. Hewitt Contracting Company, 113 Ga. App. 685, 149 S.E.2d 499 (1966).
 

Where the parties enter into a contract providing for liquidated damages for delay, but the contractor fails to follow the requirements of the contract and timely apply to the owner for an extension of time for delays beyond its control, and the contractor produces no other evidence of a contractual defense, then the contractor loses its right to a time extension under the contract and the owner may recover liquidated damages from the contractor as matter of law. Dan-D, Inc. v. Burnsed Enterprises, Inc., 188 Ga. App. 207, 372 S.E.2d 303 (1988).
 

Where a contract requires that the contractor notify the owner of any claims for extra work or extra cost by the presentation of a claim with the first estimate filed after the changed or extra work was performed, and the contractor fails to follow this requirement of the contract, the contractor was not entitled to recover for its additional work. Goodwin, Inc. v. City of Lafayette, 418 F.2d 698 (5th Cir. 1969)(finding the conduct of contractor in waiting two years after completion of project to submit claim "does not add up to open and fair dealings").
 

In any event, it always is the better practice to notify a supplier or subcontractor of a claim of defective performance or defective materials prior to initiating any repair which may result in a backcharge. Whether it is reasonable and customary to backcharge a supplier for the cost to repair a defective product without prior notice to the supplier is a question of fact to be submitted to the fact finder for a determination. Fruin-Colnon Corp. v. Air Door, Inc., 157 Ga. App. 804, 278 S.E.2d 708 (1981).
 

If the owner or its agent directs the contractor to perform some action to which the contractor objects or believes is a violation of the contract, then the contractor should indicate its position by sending a notice that it is performing under protest. Simply notifying the opposite party of price escalations or extra handling charges without acceptance of those charges by the opposite party does not assure collection of those charges. See Fruin-Colnon Corp. v. Air Door, Inc., 157 Ga. App. 804, 278 S.E.2d 708 (1981).
 

If the owner disagrees with the position taken by the contractor in the notice of protest, the owner should tell this to the contractor. The notice of protest may be considered by a court to be a counteroffer by the contractor. The owner's silence may be considered to be an acceptance of the counteroffer and may result in the owner being deemed to have waived contract conditions which conflict with the contractor's position, or to have accepted the contractor's work subject to the conditions set out in the notice of protest. State Highway Department v. Wright Contracting Co., 107 Ga. App. 758, 131 S.E.2d 808 (1963).
 

Where the opposite party is placed on notice that work is considered to be extra, the failure to follow the requirements of the contract for pricing and advance written approval of the extra work were not fatal to the claim. Batson-Cook Company v. Loden & Company, Inc., 129 Ga. App. 376, 199 S.E.2d 591 (1973).
 

Provisions as to notice must be reasonably construed. State Highway Department v. Hall Paving Co., 127 Ga. App. 625, 194 S.E.2d 493 (1972).
 
 
 

.2 Mutual Departure from Notice Requirements
 
 
 

Where a general contractor requires a subcontractor to perform extra work outside the foreseeable scope of its contract, with actual notice of the extra expenses which are being incurred by the subcontractor, then the general contractor may be found to have taken the subcontractor's claim for this extra work outside the scope of the notice requirements of the original contract. Ballenger Corporation v. Dresco Mechanical Contractors, Inc., 156 Ga. App. 425, 274 S.E.2d 786 (1980).
 
 
 

.3 Notice Required Under Uniform Commercial Code
 
 
 

Where the claim is made for a defect in a product which is regulated by the Uniform Commercial Code, notice of the defect must be given to the seller of the goods. The notice must be within a reasonable time after the buyer discovers or should have discovered the defect.
 

The failure to give the statutorily required notice bars any remedy under the UCC. O.C.G.A. § 11-2-607(3)(a). Fruin-Colnon Corp. v, Air Door, Inc., 157 Ga. App. 804, 278 S.E.2d 708 (1981).
 

The UCC expressly permits the buyer to backcharge the seller for any damages sustained from the breach. The UCC requires that this is done by notifying the seller that the buyer is deducting all or any part of the damages resulting from the breach of contract from any part of the price still due under the contract, pursuant to O.C.G.A. § 11-2-717.
 
 
 

4. Securing Claim Information
 
 
 

.1 Georgia Open Records Act (O.C.G.A. § 50-18-70)
 
 
 

The Georgia Open Records Act, O.C.G.A. § 50-18-70, provides that public records such as documents, papers, letters, maps, books, tapes, photographs, or similar material perpared and maintained by a state agency are open for inspection by any citizen of the state at a reasonable time and place.
 

Photographs or reproductions of these records are permitted, with reasonable fees for copies made by the government. O.C.G.A. § 50-18-71.
 

Certain state records exempt from production. O.C.G.A. § 50-18-72.
 

Where access is refused without substantial justification, a party may collect reasonable attorneys' fees and costs incurred in bringing an action to compel access to these records. O.C.G.A. § 50-18-73.
 
 
 

.2 Freedom of Information Act
 
 
 

The Freedom of Information Act, 5 U.S.C. § 552, requires the federal government to provide information and records maintained by the federal government, including administrative information which might not be readily accessable through other means. Each agency promulgates regulations which control how this information is to be requested and the fees associated with a request.
 
 
 
 
 

.3 Obtaining Copies of Contracts and Bonds
 

At the beginning of any construction project it is preferable for potential claimants to obtain copies of any labor and material payment bonds posted by the general contractor. It is much easier to obtain copies of the bonds before a dispute arises.
 

The Miller Act provides that the department secretary agency head of the contracting agency is authorized and directed to furnish to any person making application therefor who submits an affidavit that he has supplied labor and materials for such work and payment therefor has not been made or that he is being sued on any such bond, a certified copy of such bond and the contract for which it is given, which copy shall be prima facie evidence of the contents, execution and delivery of the originals. A fee must be paid for these copies. 40 U.S.C. § 270c.
 

Georgia's Little Miller Act provides that a copy of the bond issued on any public project may be secured from the officer who has custody of the bond. To obtain the bond, an applicant must submit an affidavit. The affidavit must state that the claimant (1) has supplied labor or materials for which work and that payment therefore has not been made; or (2) that he is being sued on any such bond or security deposit. Upon receipt of such an affidavit, the officer having custody of the bond must give a copy of the bond and the contract for which it is given, certified by an that official. O.C.G.A. § 36-82-104(e).
 

A certified copy of the bond obtained under this section is prima facie evidence of the existence and terms of the bond. Western Casualty & Surety Company v. Fulton Supply Company, 60 Ga. App. 710, 4 S.E.2d 690 (1939). It is not necessary to obtain a certified copy in order to sue on the bond. So. Surety Company v. Dawes, 161 Ga. 207, 130 S.E. 577 (1925).

5. Flow-Down Clauses
 
 
 
 
 

A flow-down clause is a contract provision which creates an obligation in a "downstream" party to comply with or be bound by some obligation of the "upstream" party, usually in the same manner or in the same degree as the upstream party is bound. For example, a flow-down clause may say that the downstream party must arbitrate if the unsteam party is served with a demand for arbitration.
 

Flow-down clauses also commonly obligate each subcontractor to comply with all of the obligations which are assumed by the general contractor in its contract with the owner. In such cases it is extremely important for the subcontractor to ask for a copy of the general contractor's contract with the owner and to carefully review it. If this is not done, then the subcontractor may inadvertently fail to comply with some condition of the general contractor's contract with the owner, perhaps leading to an inadvertent waiver of the subcontractor's claim.
 

Flow down provisions usually are treated by the courts as constituting "incorporating by reference" the provisions involved. Such clauses are effective where the provision to which reference is made has a reasonable clear and ascertainable meaning. Binswanger v. Beers, Inc., 141 Ga. App. 715, 234 S.E.2d 363 (1977); Arthur Pew Construction Co., Inc. v. Bryan Construction Co., Inc., 148 Ga. App. 114, 251 S.E.2d 105 (1978)(incorporating an indemnity clause).
 

Provisions incorporated by reference may not be effective to limit the rights of a subcontractor where they are in conflict with other provisions of the subcontract. Centex-Rodgers Construction Co. v. McCann Steel Co., 206 Ga. App. 827, 426 S.E.2d 596 (1992).
 

6. Pass-Through/Liquidating Agreements
 
 
 

Claims are sometimes settled by the use of "pass-through" or "liquidating" agreements. Often, these agreements permit a subcontractor to assert a claim in the name of the general contractor against the owner, or require the general contractor to assert claims on behalf of a subcontractor, or assign contract rights or causes of action. In exchange for the agreement to prosecute the claim, the subcontractor usually agrees to accept whatever is recovered by the general contractor in satisfaction of the claim.
 

The legal basis for these agreements has been challenged where the pass-through agreement makes it uncertain whether the general contractor is actually responsible to the subcontractor for the damages asserted in the pass-through claim. It is not sufficient for a general contractor to show that its subcontractor has sustained damage without going further and showing that the general contractor has some responsibility to the subcontractor for those damages. Department of Transportation v. Claussen Paving Co., 246 Ga. 807, 273 S.E.2d 161 (1980).
 

This is to be distinguished from pass-through agreements where the general contractor's obligation to pay the recovery on the claim to the subcontractor is made clear. In such cases the pass-though claim may be properly asserted by the general contractor on behalf of the subcontractor. Raymer v. Foster & Cooper, Inc., 195 Ga. App. 200, 393 S.E.2d 49 (1990).

7. Bid Mistakes
 
 
 
 
 

Bid mistakes are a common problem. The "mistake" can take many forms. "Unilateral" mistakes of fact include mistakes such as mathematical or clerical errors, omission of bid items, erroneous assumptions, factual misunderstandings or misinterpretations. Where a bid error of this type occurs, contractors are often given relief from their bid mistake.
 

Other types of unilateral mistakes go to the judgment of the contractor in submitting its bid. These mistakes include erroneous estimates of the time to complete the project or the crews or equipment needed.

Likewise, unilateral mistakes caused by mere ignorance of the facts or of the legal or statutory requirements of the contract, normally do not form the basis for legal relief. In the absence of fraud, artifice, or deception, it is difficult to secure relief for these types of mistakes in Georgia. O.C.G.A. §§ 23-2-27, 23-2-29. In the absence of fraud, misplaced confidence, or some other misrepresentation, if a contractor though the exercise of reasonable diligence could have determined the true facts then equitable relief is not available. O.C.G.A. § 23-2-29.

In Georgia, mutual ignorance of fact (i.e., lack of knowledge of some fact) does not afford a basis for equitable relief from the contract. See O.C.G.A. § 23-2-28. Mutual ignorance of fact is not considered the equivalent of a mutual mistake of fact under Georgia law.
 

Contractors often ask courts to modify or "reform" their bids to correct the bid mistake. If permitted, the relief will be granted only if the correction of the error does not affect the relative standing of the other bidders.

Most often, the reformation of the bid results from negotiation with the owner rather than legal action, and the owner may condition the relief upon waiving profit on the affected portion of the bid, or other concessions by the contractor. Reformation is available in Georgia only in cases of mutual mistake. O.C.G.A. § 23-2-31.
 

The remedy of cancellation or "recission" of the contract is available for unilateral mistakes. See O.C.G.A. § 23-2-31. Recission is often used where the owner caused the bid error, or knew or should have known of the error. This may be the only viable remedy where the bid error raises the contract price above the next lowest bidder.
 

It is much easier for the contractor to withdraw a bid, particularly if the bid is withdrawn before the award of the contract. Bid withdrawals are usually permitted for either unilateral or mutual bid mistakes, and usually do not result in the forfeiture of the contractor's bid bond. The sooner the contractor notifies the owner of the mistake, the easier it is to obtain relief. Under Georgia law, relief from mistakes of fact may only be obtained if the complaining party applies for relief within a reasonable time. O.C.G.A. § 23-2-24.
 

Delay also increases the likelihood that the owner will rely on the bid or take some action which would actually cause damage the owner. Kurfees v. Davis, 178 Ga. 429, 173 S.E. 157 (1934)(relief from bid available only where the bidder exercised ordinary diligence in discovering the truth and the relief requested will not prejudicially affect the rights of others).
 

Even if the contractor was negligent or violated some legal duty in making the mistake, relief still may be granted from the mistake if the owner has not been prejudiced by the negligence. O.C.G.A. § 23-2-32.
 

As soon as a bid mistake is discovered, the contractor should immediately notify the owner of the bid mistake, withdraw the bid, and cancel the bid bond. This should be done first by telephone, and then confirmed in writing by a telegram, fax, or hand-delivered letter. It is ideal if the date and time that the notice was given is confirmed in writing, perhaps by an acknowledgement of receipt of the notice by the owner or his representative.
 

A number of factors are often considered by the courts in granting relief from a bid mistake. These include whether the mistake relates to a material part of the contract (such as price), whether the mistake was caused by gross negligence or violation of the law (courts are more likely to correct "honest mistakes"), whether relief from the bid will cause the owner serious prejudice (rebidding the contract, increasing the cost of the work, etc.), and whether the mistake is so grave that to enforce the bid would be "unconscionable."
 

It usually is much easier for the contractor to ask a court to withdraw a bid. For example, in Peerless Casualty Co. v. Housing Authority, 228 F.2d 376 (5th Cir. 1955), the court held that where there is some reasonable excuse for an error in calculating the bid, and the party receiving the bid knows of the mistake at the time the bid is accepted, then the contractor may withdraw the bid. See First Baptist Church of Moultrie v. Barber Contracting Co., 189 Ga. App. 804, 377 S.E.2d 717 (1989)(general contractor permitted to withdraw bid for material mistake when owner notified prior to award, despite admitted negligence and 35-day acceptance period); State Highway Dept. v. MacDougald Construction Co., 54 Ga. App. 310, 187 S.E. 734 (1936) (withdrawal of bid permitted because delivery of bid and check were not supported by valuable consideration and thus the bid is merely a proposal and not a binding "option"; it therefore may be withdrawn before it is accepted and bidder may recover its deposit).

Normally, subcontractors and suppliers are not permitted to withdraw their bids after they are submitted to the general contractor and relied upon by the general contractor in submitting its own bid to the owner.
 

A fairly typical case where a subcontractor or supplier tries to withdraw its bid is Frazier Associates Manufacturers Representatives, Inc. v. Dabbs & Stewart, 173 Ga. App. 304, 325 S.E.2d 914 (1985). In that case, the general contractor sued a supplier who refused to honor its bid. The general contractor then obtained the materials from another source and sued the subcontractor for the difference between the price of the substituted materials and the supplier's bid for the same materials. The court found no obvious error on the face of the bid and noted that the supplier had even reaffirmed the bid on several occasions. The general contractor had relied on the bid in submitting its own bid to the owner. Forced to choose between two innocent parties, the court found that the negligent supplier who caused the bid error should bear the loss.
 

A bid bond is normally given by a bidder on a public or private project in order to guarantee that the bidder will enter into the contract and post the required performance and payment bonds in the event that the bidder is awarded the contract.
 

If the principal on a bid bond defaults, the liability of the principal and the surety will ordinarily be limited to the difference between the amount of the principal's bid and the amount of the next lowest responsible, responsive bidder.
 

Both public and private owners who engage in competitive bidding may wish to protect the integrity of the bidding process by insisting on the posting of a bid bond. A bid bond usually is taken as a percentage of the total contract price, but sometimes is required in a stated amount by the owner.
 

A bid bond is normally given by a bidder on a public or private project in order to guarantee that the bidder will enter into the contract and post the required performance and payment bonds in the event that the bidder is awarded the contract.
 

If the principal on a bid bond defaults, the liability of the principal and the surety will ordinarily be limited to the difference between the amount of the principal's bid and the amount of the next lowest responsible, responsive bidder.
 

Both public and private owners who engage in competitive bidding may wish to protect the integrity of the bidding process by insisting on the posting of a bid bond. A bid bond usually is taken as a percentage of the total contract price, but sometimes is required in a stated amount by the owner.
 

A bid bond protects the owner in the event that the general contractor defaults on its obligation to sign a contract with the owner in the amount of the bid. The remedy provided by the bid bond is not the performance of the contract but is instead the payment of a sum of money to compensate the owner for the failure to secure a binding contract.

8. Bid Protests
 
 
 

Bid protests arise when an unsuccessful bidder, usually the "second low" bidder, objects to the award of the contract low bidder. Events which may trigger a bid protest include a low bid which is unbalanced, fails to comply with bidding procedures, or has other defects.

Bid protests usually occur in the context of public work, normally because the public authority is obligated by law to award the bid to the lowest responsible, responsive bidder. Hilton Construction Co., Inc. v. Rockdale County Board of Education, 245 Ga. 533, 266 S.E.2d 157 (1980).
 

In contrast, private owners who bid work usually include a provision in the bid solicitation indicating that the owner has complete discretion to accept or reject any bid, even one which is not low. For this reason, bid protest in the private sector are rare.
 

Public authorities may have complicated bid protest procedures or regulations, and if they do, then the contractor seeking to file a bid protest should carefully follow these procedures.

The process for filing a bid protest also may be set out in the bid package, and this should be carefully examined in order to verify the exact procedures required to protest the bid.
 

In Georgia, many public owners have not adopted formal bid protest procedures. In that is the case, it usually is helpful to call the owner's representative to inquire about bid protest procedure preferred by the owner. Often the owner will require nothing more than a letter setting out the grounds for the bid protest.
 

Most courts will require that all "administrative" procedures be exhausted before any judicial action can be taken.
 

A frustrated bidder normally will be required to seek an injunction barring the award of a contract to another party or the re-bidding of the project. Suing to recover lost profits after the contract already has been awarded to another normally will not be successful.
 
 

Annot., Standing of Disappointed Bidder on Public Contract to Seek Damages Under 42 U.S.C. § 1983 for Public Authority's Alleged Violation of Bidding Procedures, 86 A.L.R. Fed. 907 (1988).
 

Annot., Recovery from the United States of Cost Incurred by Unsuccessful Bidder in Preparing and Submitting Contract Bid in Response to Government Solicitation, 30 A.L.R. Fed. 355 (1976).
 
 

9. Changed Conditions Claims
 
 
 

.1 In General
 

Changes are a fact of life in construction contracting, and successfully dealing with changes often spells the difference between success and failure of a contractor. Owners should recognize that changes are inevitable even on a well-planned project, and should allow for such contingencies in their schedule and budget.
 

Construction contracts usually have clauses dealing with any changes which may arise on the project. Contractors and owners should pay particular attention to these provisions and should carefully follow the procedural requirements of the changes clause in order to avoid prejudicing their rights to recover for changes.
 

Claims for differing site conditions are very common due to the inherent difficulty of determining the conditions existing underground or within the structure of a completed building. Differing site conditions often significantly increase the cost of construction, create unforeseen delays, complicate construction techniques, and disrupt the smooth operation of the project.
 
 
 
 
 

.2 Duty to Proceed Despite Unforeseen Difficulties
 
 
 

A contractor performing work under a fixed price contract is not entitled to additional compensation merely because unforeseen difficulties are encountered in the performance of the contract. Decatur County v. Praytor, Houston & Wood, 165 Ga. 742, 142 S.E.2d 678 (1928); Anderson v. Golden, 569 F.Supp. 122 (S.D. Ga. 1982).
 

.3 Duty to Inspect
 
 
 
 
 

Where the contract places a duty on the contractor to inspect and verify site conditions, this duty will ordinarily be enforced. Jahncke Services, Inc. v. Department of Transportation, 172 Ga. App. 215, 322 S.E.2d 505 (1984)(contract places duty on contractor to make its own investigation of borrow pits).
 
 
 

.4 Disclaimer Clauses
 
 
 
 
 

Construction contracts often contain a "differing site conditions" clause to address the issue how responsibility for differing site conditions will be allocated between the owner and the contractor.
 

If the owner elects to provide the contractor with site data which was obtained by the owner's own site investigation, the owner may accompany that site data with a disclaimer indicating that the owner and site engineer do not warrant the accuracy or correctness of the data, and that the data was gathered solely for the owner's use and is provided to the contractor with that express understanding.
 

The construction contract also may require the contractor to conduct its own site inspection, and may completely disclaim any owner responsibility for unforeseen site conditions. Time may be insufficient for the contractor to conduct a proper site investigation before a bid must be submitted, or cost constraints may make an independent site investigation financially impossible.
 

Issues frequently arising in the context of differing site conditions include whether the contractor was on notice of the site conditions due to site examination, the adequacy of that site examination, whether the site conditions were reasonably foreseeable by the contractor, whether the contractor relied upon site data submitted to the contractor by the owner, whether the site conditions were materially different from those contemplated in the contract documents or site report, whether the contractor's means and methods were reasonable and prudent, causation, whether adequate notice was given, and many others, not all of which have been addressed by the cases in Georgia.
 

Merger or disclaimer clauses in the contract also present special problems. Merger or disclaimer clauses normally provide that the written contract represents the entire agreement between the parties and supercedes all prior negotiations, representations, and agreements. Accordingly, if the contractor sues the owner for fraud without rescending the contract containing such a merger clause, then the contractor is deemed to have "affirmed the contract" and accepted its benefits, and thus is estopped from asserting that representations outside the four corners of the contract caused or contributed to the contractor's loss.
 

The Georgia Court of Appeals has observed that the very fact that a contract contains a provision for extra work necessitated by unforeseen conditions is evidence enough that not every condition is expected to be anticipated. State Highway Department v. Wright Contracting Co., 107 Ga. App. 758, 131 S.E.2d 808 (1963).
 

Where the contract in question does not contain an unforeseen conditions clause, unequivocally limits the contract to a sum certain, and contains an inspection clause, the contract imposes the risk of uncertainty of subsurface conditions on the contractor. American Demolition, Inc. v. Hapeville Hotel Limited Partnership, (Ga. App., Case No. A91A1385, Nov. 14, 1991).
 
 
 

.5 Conditions Differing from

Contract Indications
 

Differing site conditions claims may arise either as a breach of contract claim or as a tort claim, depending upon how the claim arose. If a construction contract represents that certain conditions exist on the site, and in fact the actual conditions on the site differ from those represented in the contract, then a contract-based claim arises.
 

A detailed analysis of the modern view on this issue was undertaken by the court in Robert E, McKee v. City of Atlanta, 414 F.Supp. 957, 959 (N.D. Ga. 1976). In that case, the court noted that if the contract clearly places the risk of uncertainty on one of the parties, then that party must absorb the losses resulting from the unexpected condition. But where the government makes positive statements of material fact concerning the work in question an implied warranty arises which is not lost by general exculpatory clauses disclaiming any responsibility for the accuracy of the data.
 

The court went on to note that this implied warranty is conditioned upon a determination of whether the contractor could have discovered the true facts through a reasonable investigation, given the time available, as well as the facilities and expense required in order to conduct a suitable investigation.
 

Other factors considered are the detailed nature of the government's data. No relief will be granted, however, for the contractor's own misjudgment based upon information which is itself accurate. This decision is in accordance with the majority view on this issue, but the Georgia state courts seem to have been less willing to embrace this view. For example, the Georgia courts have held that conditions shown on the plans and specifications which are expressly made subject to adjustment by the project engineer do not constitute a misrepresentation of site conditions. Decatur County v. Praytor, Houston & Wood, 165 Ga. 742, 142 S.E.2d 678 (1928).
 

.6 Conditions Differing from Those Normally Encountered
 

As reflected in the foregoing decisions, the contractor usually is not entitled to recover from the owner for extra expense occasioned by conditions which differ from those normally encountered. This is particularly true where the contract places the risk of such conditions on the contractor, and the owner does not mislead the contractor or misrepresent the actual job conditions.
 

.7 Notice
 

Where the contract requires the contractor to give notice of extra expense caused by unforeseen site conditions, these provisions ordinarily are enforced. State Highway Department v. Hewitt Contracting Company, 113 Ga. App. 685, 149 S.E.2d 499 (1966).
 

.8 Withholding Information
 

If the site conditions actually are concealed from the contractor, in other words, active rather than passive concealment of the conditions, then the concealment of the site conditions may give rise to a tort claim for fraud and misrepresentation. Robert E. McKee, Inc. v. City of Atlanta, 414 F.Supp. 957 (N.D. Ga. 1976).
 

Where county officials or the project engineer are responsible for the fraud, they may be personally liable. Decatur County v. Praytor, Houston & Wood, 165 Ga. 742, 142 S.E.2d 678 (1928).
 

The contractor must make an election either to affirm the contract and sue for breach of contract, or to rescind the contract and sue for fraud.
 

Suing for fraud requires a careful consideration of the legal elements of the fraud claim and a cautious approach to the analysis of the provisions of the contract and its effect on the fraud claim.

10. Defensive Use of Change Orders
 
 
 

The issuance and acceptance of a change order usually is considered conclusive resolution of all of the costs or time extensions covered by the change order. In some cases, the Georgia courts have reached this conclusion by finding that the acceptance of a change order by the subcontractor constitutes an "accord and satisfaction" of all matters dealt with in the change order.

A change order is not always conclusive. Change orders unilaterally issued by the general contractor may be considered an "offer" which can be accepted or rejected by the subcontractor.
 

Furthermore, a subcontractor may be able to avoid the conclusive effect of a change order by proving the existence of a separate and distinct collateral agreement. For example, in J.L. Williams & Company, Inc. v. West Concrete Company, 139 Ga. App. 208, 228 S.E.2d 196 (1976), the court held that neither the execution of a "wrap up" change order dealing with certain claims and backcharges relating to the subcontractor, nor the execution of a lien waiver and affidavit by the subcontractor waiving rights against the owner (to which the general contractor was not a party), precluded the existence of a separate and distinct oral agreement of the general contractor to pay for certain payroll expenses of the subcontractor. Although these documents were evidence casting doubt upon the existence of a separate and collateral oral agreement, under the circumstances of the case the court found that a question of fact was presented as to whether the change order constituted an accord and satisfaction intended to extinguish the oral agreement along with the subcontractor's other claims.

11. Constructive or Verbal Change Orders
 
 
 

.1 Generally
 
 
 

When one renders a service which is valuable to another and that service is accepted by the other party, there arises an implied promise to pay for the reasonable value of that service. O.C.G.A. § 9-2-7.
 

"Even if there is an express contract, if services not contemplated by the original agreement become necessary to achieve the contractually objective and are rendered and accepted, the law implies and enforces performance of a promise to pay for such extra services." Puritan Mills, Inc. v. Pickering Construction Co., 152 Ga. App. 309, 262 S.E.2d 586 (1979); Fruin-Colnon Corp. v. Air Door, Inc., 157 Ga. App. 804, 278 S.E.2d 708 (1981)(cost of extra engineering services).
 

An implied promise to pay for extra work arises by a showing that the owner required the contractor to perform extra work in addition to the work for which a contract priced had been fixed. Gardner v. Tarpley, 120 Ga. App. 192, 169 S.E.2d 690 (1969); Finn v. Carden, 100 Ga. App. 270, 110 S.E.2d 693 (1959)(contractor directed by owner to perform any extra work ordered by owner's wife); Johnson v. Freeman, 160 Ga. App. 431, 287 S.E.2d 314 (1981).
 

Where both the owner and the general contractor authorize and accept extra work performed by a subcontractor, then an implied promise to pay for the reasonable value of the extra work arises by operation of law, and both the owner and the general contractor may be sued by the subcontractor. Conway v. Housing Authority of the City of Atlanta, 102 Ga. App. 333, 116 S.E.2d 331 (1960).
 

Likewise, where it is proven that the owner alone expressly authorized and requested the subcontractor to perform extra work directly for the owner, and the owner accepts the services and benefits provided by the subcontractor, then owner may be held liable for the reasonable value of the services provided by the subcontractor. Highsmith v. National Linen Service Corp., 63 Ga. App. 112, 10 S.E.2d 237 (1940).
 

The element of knowledge and consent to the performance of the extra work, either express or implied, is a critical element of the implied promise to pay. Where the work is performed without the knowledge, authority, consent or ratification of the owner, then an implied promise to pay for the work does not arise. Lawson v. O'Kelley, 81 Ga. App. 883, 60 S.E.2d 380 (1950); Mayor of Brunswick v. Sims, 14 Ga. App. 315, 80 S.E. 730 (1914).
 
 
 

.2 Contracts Requiring Written Change Orders
 
 
 

Most construction contracts prohibit changes without the prior written approval of the owner. Some contracts go further, and bar payment for any work performed without a written change order.
 

As a general rule, in the absence of facts proving waiver or estoppel by a showing of some affirmative authorization to perform the extra work, the provisions of a building contract requiring notice, prior approval, and the issuance of a written change order before the performance of extra work are valid and enforceable. State Highway Department v. Hewitt Contracting Company, 113 Ga. App. 685, 149 S.E.2d 499 (1966)(failure to give contractually-required notice bars contract claim).
 

For example, in Heard v. Dooly County, 101 Ga. 619, 28 S.E. 986 (1897), the court enforced a contract provision barring any payment for extra work performed without a prior estimate and written authorization. See Town of Decatur v. Jaudon, 136 Ga. 854, 72 S.E. 351 (1928); Grahn Construction Co. v. Pridgen, 49 Ga. App. 720, 176 S.E. 656. In these cases there was no allegation or proof of an express agreement by the defendant to pay for the alleged extra work, and that the changes were not necessary to the completion of the original job.
 

In Cobb v. Bond, 39 Ga. App. 637, 148 S.E. 411, the contractor entered into a contract providing that the owner was entitled to make changes in the work and there was no provision for additional payment for these changes. The court held under these circumstances the contractor was not permitted to recover additional payment for the changes.
 

The courts in Georgia have held, however, that such a provision does not always bar a recovery by the contractor for work performed without a written change order. Provisions such as these are not intended to bar the contractor from recovering for extra work added by the owner which was not within the scope of work of the original contract. Finn v. Carden, 100 Ga. App. 270, 110 S.E.2d 693 (1959)(contract claim barred because approval received from architect, but quantum meruit recovery permitted on implied obligation to pay for extra work ordered by owner's wife).
 

Georgia law provides that when the parties to a contract mutually depart from its terms and pay or receive money under such departure, the contract term is suspended until reasonable notice is given to the other party stating the intention to return to the exact terms of the written agreement. O.C.G.A. § 13-4-4.
 

Accordingly, where the parties by a course of conduct mutually depart from the strict terms of the contract and operate without prior written change orders there may be a waiver of this contract provision or an oral variation of the provisions of the contract. Biltmore Construction Co. v. Tri-State Electric Contractors, Inc., 137 Ga. App. 504, 224 S.E.2d 487 (1976); Clark v. Belleau, Inc., 114 Ga. App. 587, 151 S.E.2d 894 (1966)(engineer's approval waived); State Highway Department v. Wright Contracting Co., 107 Ga. App. 758, 131 S.E.2d 808 (1963)(engineer's failure to act after notice of claim waives contract requirement of prior written agreement).
 

A mutual departure from the contract occurs when the owner, without claiming that the work is covered by the contract, orally orders extra work with notice that the contractor regards the work as extra and expects additional compensation for it, the contractor can recover for the value of the work despite the fact that there is a stipulation in the contract requiring that all changes be ordered in writing. State Highway Department v. Wright Contracting Co., 107 Ga. App. 758, 131 S.E.2d 808 (1963); State Highway Department v. Hewitt Contracting Company, 113 Ga. App. 685, 149 S.E.2d 499 (1966).
 

The same rule applies to prime contractors who orally order extra work from subcontractors. Mion Chemical Corp. v. Daniel Construction Co., 111 Ga. App. 369, 141 S.E.2d 839 (1965)(subcontractor's extra work occasioned by faulty work of prime contractor); Clark v. Belleau, Inc., 114 Ga. App. 587, 151 S.E.2d 894 (1966)(court allows subcontractor quantummeruit recovery where contractor-owner's superintendent agrees to pay for removal of muck as an extra); Pro Metal Building Systems, Inc. v. T.E. Driskell Grading Co., Inc., 170 Ga. App. 127, 316 S.E.2d 574 (1984)(recovery permitted for rework caused by general contractor); Excavators and Erectors, Inc. v. Bullard Engineers, Inc. 489 F.2d 318 (5th Cir. 1973)(separate oral agreement to pay subcontractor for cost of replacing unsuitable soil).
 

The courts reason that the owner should not be permitted to mislead the contractor into thinking that the work will be paid for, and then enjoy the fruits of the contractor's labor without paying for the contractor's services. In other words, under these circumstances, the courts will not permit a forfeiture of the rights of the contractor merely because the the failure to comply with the formal prerequisites of the contract. McDaniel v. Mallary Brothers Machinery Co., 6 Ga. App. 848, 66 S.E. 146.
 

The extra work also may be ordered by the owner's architect. Where the architect is given authority to order extra work and acts within this authority to direct the contractor to perform extra work, then the owner is obligated to pay for the extra work ordered by the architect. Continental Casualty Company v. Wilson-Avery, Inc., 115 Ga. App. 793, 156 S.E.2d 152 (1967).
 

In much the same way, where a subcontractor places the general contractor on notice of a claim for extra work which is denied by the general contractor, and both parties are equally well-informed about what is required to do the work, then the subcontractor may be excused from strictly following the change order requirments of the contract. Batson-Cook Company v. Loden & Company, Inc., 129 Ga. App. 376, 199 S.E.2d 591 (1973).
 

In order to be valid, the subsequent oral modification must be supported by separate consideration. Willingham Sash etc. Co. v. Drew, 117 Ga. 850, 45 S.E. 237; Brookhaven Landscape & Grading Co., Inc. v. J.F. Barton Contracting Co., 676 F.2d 516 (11th Cir. 1982)(finding no consideration for that portion of the contractor's claim which included work covered by the original scope of work for the project).
 

Sufficient consideration to support an oral modification of a written contract is provided where the builder makes alterations which entail the outlay of additional expenses and costs pursuant to the owner's direction, and the owner subsequently accepts the building as altered and occupies it. Bailey v. Martin, 101 Ga. App. 63, 112 S.E.2d 807 (1960).
 
 

Annot., Effect of Stipulation in Public Building or Construction Contract That Alterations or Extras Must Be Ordered in Writing, 1 A.L.R.3d 1273 (1965).
 
 
 

Annot., Effect of Stipulation, in Private Building or Construction Contract, That Alterations or Extras Must Be Ordered in Writing, 2 A.L.R.3d 620 (1965).
 
 
 

CONTRACT PERFORMANCE AND PAYMENT CLAIMS
 
 
 

12. Breach of Contract
 
 
 

.1 In General
 
 
 

There are countless Georgia cases dealing with breach of contract in the context of a construction contract. It almost goes without saying that where a contractor enters into a contract to perform in accordance with plans and specifications furnished by the owner, and the contractor breaches that contract, the contractor is liable for the breach to the owner.
 

Restitution, damages and specific performance are the three remedies for breach of contract. PMS Construction Co., Inc. v. DeKalb County, 243 Ga. 870, 257 S.E.2d 285 (1979)(citing 5 Corbin on Contracts §§ 1102-1121). Other methods of collecting damages for breach of a construction contract include quantum meruit and constructive trust.
 
 
 

.2 Restitution
 
 
 

The object of the remedy of restitution is to return the injured party to the position he occupied before his performance. In other words, to restore him to the pre-contract status quo. Restitution is an alternative remedy to a breach of contract suit which entitles a party whose express contract has been breached or repudiated to recover the reasonable value of materials furnished and services rendered, measured as of the time of performance. PMS Construction Co., Inc. v. DeKalb County, 243 Ga. 870, 257 S.E.2d 285 (1979); Decatur County v. Praytor, Howton, & Wood Contracting Co., 163 Ga. App. 929, 137 S.E. 247 (1928).
 

.3 Damages
 
 
 

Damages recoverable for a breach of contract are such as arise naturally and according to the usual course of things from such breach. They must be within the contemplation of the parties when the contract was made as the probable consequence of its breach. O.C.G.A. § 13-6-2.
 

The courts in Georgia have not been completely clear about how this standard is to be applied. What is clear is that the standard will be different, depending upon the circumstances of the breach.
 

The proper measure of damages for the breach of an express contract by the building contractor is the difference in the fair market value of the project as it was constructed by the contractor and the fair market value of the project as it ought to have been constructed in accordance with the contract between the parties. Kendrick v. White, 75 Ga. App. 307, 43 S.E.2d 285 (1947); McKee v. Wheelus, 85 Ga. App. 525, 69 S.E.2d 788 (1952); Classic Restorations, Inc. v. Bean, 155 Ga. App. 694, 272 S.E.2d 557 (1980); Hortman v. Cantrell, 173 Ga. App. 429, 326 S.E.2d 779 (1985); Jim Walter Homes, Inc. v. Strickland, 185 Ga. App. 306, 363 S.E.2d 834 (1987).
 

A second acceptable measure of damages for defective workmanship is the cost of repair of the defects. Small v. Lee & Bros., 4 Ga. App. 395, 61 S.E. 831 (1908); Dougherty v. Simpson, 190 Ga. App. 718, 380 S.E.2d 57 (1989). This measure will not be applied where it will result in economic waste. Ideal Pool Corp. v. Hipp, 187 Ga. App. 273, 370 S.E.2d 32 (1988).
 

The proper measure of damages recoverable by a contractor when the owner wrongfully breaches a construction contract was set out in the case of Williams v. Kerns, 153 Ga. App. 259, 265 S.E.2d 605 (1980). In essence, this figure is the net profit to which the builder would have been entitled had full performance of the contract been permitted.
 

That net profit figure is reached by subtracting from the contract price the amount which full performance would have cost the contractor.
 

If performance by either party had begun prior to the breach, adjustments must be made to ensure that the contractor receives the full amount of the profit, but no more. The court set out a formula to reach this figure.
 

First, there must be added to the profit figure the amount of the contractor's net loss up to the point of the breach. That figure is reached by subtracting from the expenses incurred by reason of the contractor's performance the salvage or resale value of the material left on hand. The sum of those figures (the profit which would have been realized from full performance plus net loss incurred by performance to the date of breach) may in no event exceed the contract price.
 

Second, there must be deducted from the recovery those amounts received by the contractor from the owner as prepayment or progress payment.
 

.4 Specific Performance

Specific performance of a contract may be ordered by a court where performance of a contract is within the power of a party and where damages for breach of the contract would not be adequate compensation for the breach. O.C.G.A. § 23-2-130.
 

.5 Constructive Trust
 

A number of states have adopted statutes that require a general contractor who is paid by the owner in amounts which in part represent payments owed to its subcontractors and suppliers to hold this money in trust for the benefit of those parties. Georgia has no such statute.
 

Although Georgia is not a "trust fund" state it does, however, have court decisions which recognize the constructive trust fund theory on equitable grounds. Bethlehem Steel Corporation v. Tidwell, 66 B.R. 932 (M.D. Ga. 1986)(citing Georgia authority for "construction" or "constructive" trusts).
 

.6 Quantum Meruit
 

In the absence of a contract affording a party a legal right to recover for goods and services provided to another, the party may assert a claim in equity for a "quantum meruit" recovery for the reasonable value of the goods and services which were provided to the other party. Such a recovery is based upon a legally implied promise to pay for the reasonable value of goods and services which are accepted by another. In Georgia, this right to recover in quantum meruit is stated in O.C.G.A. § 9-2-7, which states:
 

Ordinarily, when one renders service or transfers property which is valuable to another, which the latter accepts, a promise is implied to pay the reasonable value thereof....
 

This remedy is not available, however, where the parties have entered into an express contract for the delivery of such goods and services. "There can be no recovery in quantum meruit when the action is based on an express contract." Stowers v. Hall, 159 Ga. App. 501, 283 S.E.2d 714 (1981).
 

The measure of damages recoverable under quantum meruit is limited to the value received by the party receiving the goods and services. Pembrook Steel Co. v. Technical Sales Assoc., 138 Ga. App. 744, 227 S.E.2d 491.
 

Evidence of this value is often provided by the testimony of an expert witness who testifies as to the value provided by the plaintiff. As an evidentiary matter, the cost of labor and materials used in performing the work is relevant to show the value of the improvements made, although it is the responsiblity of the judge or jury to determine the actual value of the improvements made. Maloy v. Ewing, 157 Ga. App. 95, 276 S.E.2d 145.
 

This remedy of quantum meruit or implied contract is not available when a county is a defendant, as a result of O.C.G.A. § 36-10-1, which requires that all contracts entered into by a county governing authority be in writing and entered on its minutes. PMS Construction Co., Inc. v. DeKalb County, 243 Ga. 870, 257 S.E.2d 285 (1979).

13. Inspection and Quality Control
 
 
 

.1 Overinspection Claims
 
 
 

Where the architect requires stricter inspection or quality standards than those set out in the specifications, and the contractor properly protests compliance with these higher standards, then the contractor may recover for these extra costs. Batson-Cook Company v. Loden & Company, Inc., 129 Ga. App. 376, 199 S.E.2d 591 (1973).
 
 
 

.2 Industry Standards
 
 
 

A wide variety of sources exist for establishing industry standards for performance of a construction contract. The typical way in which such standards are proven is by way of expert testimony. Such testimony is admissible to show the custom and practice of a construction trade. Biltmore Construction Co., Inc. v. Tri-State Electrical Contractors, Inc., 137 Ga. App. 504, 224 S.E.2d 487 (1976); Puritan Mills, Inc. v. Pickering Construction Co., Inc., 152 Ga. App. 309, 262 S.E.2d 586 (1979).
 
 
 

.3 Architect or Engineer's Approval
 
 
 

Ordinarily, where the contract makes the decision of the architect or engineer binding on the contractor, such a provision will be enforced. Finn v. Carden, 100 Ga. App. 270, 110 S.E.2d 693 (1959).
 

Where the contract makes engineer's decision in certain matters final, in the absence of fraud or such gross mistake as would necessarily imply bad faith or a failure to exercise an honest judgment, then the contractor may not recover for costs associated with the engineers decision, even if the contractor proves that decision is erroneous. State Highway Department v. Hewitt Contracting Company, 113 Ga. App. 685, 149 S.E.2d 499 (1966).
 

This rule does not extend to errors in calculation or other such mistakes not related to engineering judgment. State Highway Department v. Hewitt Contracting Company, 113 Ga. App. 685, 149 S.E.2d 499 (1966).
 

14. Specification Disputes
 
 
 

In the typical construction contract the owner provides the general contractor with a set of plans and specifications prepared by the owner's architect or engineer. The contractor is asked to build the project in accordance with those plans and specifications and not to deviate from those plans and specifications without the permission of the owner.
 

Under these circumstances, if the completed project is unsatisfactory to the owner for some reason but the contractor followed the plans and specifications in building the project, the courts have been reluctant to hold the contractor responsible for any deficiencies in the completed structure.
 

Where a contractor signs a contract agreeing to construct a project in accordance with plans and specifications prepared by the owner, the contractor is not responsible for the consequences of defects in the plans and specifications. United States v. Spearin, 248 U.S. 132, 136 (1918). Spearin has been cited with approval in Georgia. Decatur County v. Praytor, Houston & Wood, 165 Ga. 742, 142 S.E.2d 678 (1928).
 

The contractor is not responsible for unsatisfactory results attributable solely to defects in the owner's plans and specifications. Batson-Cook Co. v. R.C. Pierce Roofing Co., 124 Ga. App. 835, 186 S.E.2d 358 (1971).
 

In Decatur County v. Praytor, Houston & Wood, 165 Ga. 742, 142 S.E.2d 678 (1928), the Georgia Supreme Court held that where a unit-price contract gives the project engineer discretion to change the stated elevation of certain piers shown on the owner's plans and specifications, then there is no implied warranty that the piers will be built at the elevations shown on the plans and specifications.
 

In State Highway Dept. v. Hewitt Contracting Co., 113 Ga. App. 685, 149 S.E.2d 499 (1966), the court again held that there was no implied warranty of the plans and specifications by the owner, where the terms of a State Highway Department contract which warned that there may be errors in the plans and specifications and provided for the contractor to be compensated for the actual work done upon completion of the contract, including compensation for any additional work required because of errors or changes in the plans and specifications.
 

Where the contractor is consulted by the owner in establishing the specifications, and the contractor knows that the owner is relying upon the contractor's expertise, the contractor may not set up as a defense the improper specifications of the owner. Talerica v. Grove Park Plumbing Service, 103 Ga. App. 591, 120 S.E.2d 36 (1961).
 
 

Annot., Construction Contractor's Liability to Contractee for Defects or Insufficiency of Work Attributable to the Latter's Plans and Specifications, 6 A.L.R.3d 1394 (1966).
 

15. Termination Claims
 
 
 

.1 Wrongful Termination
 
 
 

Where a contractor is wrongfully terminated, an action will lie for the damages caused by the wrongful termination. Stowers v. Hall, 159 Ga. App. 501, 283 S.E.2d 714 (1981); Marathon Oil Company v. Hollis, 167 Ga. App. 48, 305 S.E.2d 864 (1983).
 

In order to avoid problems in cases of voluntary termination, the better practice is to obtain from the defaulting party an acknowledgement of default or some form of admission that there has been a material breach of contract.
 

The acknowledgement of default also should include a final lien waiver in the proper statutory form acknowledging that any payments which have been previously received constitute full and final payment under the contract. Although O.C.G.A. § 44-14-361.1(a)(1) requires "substantial compliance" with the construction contract as a condition precedent for a lien filing, this seldom deters a lien filing.
 

.2 Termination for Convenience
 

The modern trend is to permit the owner to terminate its contract with the general contractor for "convenience," meaning that there is no requirement for the owner to show cause for the termination. In such clauses, the owner usually agrees to pay for the contractor's direct costs of demobilization, but not for any lost profits on the job.
 

Such clauses do not always insulate the owner from liability to the general contractor. See Department of Transportation v. Arapaho Construction, Inc., 180 Ga. App. 341, 349 S.E.2d 196 (1986).

16. Contractor's Right to Stop Work

or Rescind Contract
 

A contractor entering into a contract containing a disputes clause must follow the disputes procedure set out in that clause and may not simply stop work because of payment disputes with the general contractor. Keyway Contractors, Inc. v. Leek Corporation, Inc., 189 Ga. App. 467, 376 S.E.2d 212 (1988).
 

A contractor who partially performs a contract and then voluntarily abandons further performance without fault of the other party or the other party's consent, cannot sue to recover damages for the part performance. Ramco Roofing & Supply Co., Inc. v. Kaminsky, 156 Ga. App. 708, 275 S.E.2d 764 (1980).
 

A subcontractor may not withhold a warranty which is made an express condition precedent to payment under a contract on the grounds that the general contractor's failure or anticipated breach of its obligation to pay the subcontractor. Dixie Roof Decks, Inc. v. Borggren/Dickson Construction, Inc., 195 Ga. App. 881, 395 S.E.2d 19 (1990).
 

The Georgia courts have recognized actions to recover for anticipatory breach of contract. See Peachtree Medical Building, Inc. v. Keel, 107 Ga. App. 438, 130 S.E.2d 530 (1963).
 

A party may rescind a contract without the consent of the opposite party on the ground of nonperformance by that party, but only when both parties can be restored to the condition in which they were before the contract was made. O.C.G.A. § 13-4-62.
 

A contract may be rescinded at the instance of the party defrauded, but in order to rescind the contract, the defrauded party must promptly upon discovery of the fraud restore or offer to restore to the other party whatever he has received by virtue of the contract, if it has any value. O.C.G.A. § 13-4-60.
 

A contractor who continues to perform despite having grounds for rescending the contract will be deemed to have waived its right to rescind the contract. State Highway Department v. Hewitt Contracting Co., 221 Ga. 621, 146 S.E.2d 632 (1966).

17. Scope of Work Disputes
 
 
 

.1 Extra Work Claims
 

Scope of work disputes are an extremely common souce of construction claims. Most contracts define the contractor's scope of work broadly, to include all work reasonably necessary to accomplish the the work set out in the contract, or referenced in the plans and specifications.
 

What happens when there is a conflict between the scope of work as set out in the contract, and the scope of work described in the plans and specifications? In Eller & Heyward, Inc. v. Jackson, 117 Ga. App. 753, 162 S.E.2d 238 (1968), a subcontractor contended that the subcontract requiring installation of gutters and downspouts conflicted with the construction drawings for the project which showed that no gutters and downspouts were to be installed. The court declined to determine as a matter of law whether one or the other of the documents controlled, and found that on the facts of this case the meaning of the contract was an issue of fact which was properly submitted to the jury for a determination of the intention of the parties.
 
 
 

.2 Claims for Quantity Variation Quantities
 
 
 

Where a contract provides unit prices for quantities called out in a contract, the Georgia courts have not been particularly receptive to claims for extra expense caused by the variation from the estimated quantities. See State Highway Department v. MacDougald Construction Co., 102 Ga. App. 254, 115 S.E.2d 863 (1960); Western Contracting Corporation v. State Highway Department, 125 Ga. App. 376, 187 S.E.2d 698 (1972); Department of Transportation v. Claussen Paving Company, 246 Ga. 807, 273 S.E.2d 161 (1980)(owner admitted estimated quantities were wrong).

18. Duty to Coordinate and Cooperate
 
 
 

Every contract imposes a duty of good faith and fair dealing in its performance and its enforcement. Restatement (Second) of Contracts § 231; O.C.G.A. § 11-1-203.

This means that there should be substantial compliance with both the letter and the spirit of the contract. Crooks v. Chapman Co., 124 Ga. App. 718, 185 S.E.2d 787 (1971).
 

Where a party breaches the duty of good faith and fair dealing, the party may be precluded from insisting on strict compliance with the terms of the contract. West v. Koufman, 259 Ga. 505, 384 S.E.2d 664 (1989)(party solicited filing of false liens).
 

If the nonperformance of a party to a contract is caused by the conduct of the opposite party, then this conduct excuses the other party from performance. O.C.G.A. § 13-4-23.
 

Georgia also has a bad faith statute which authorizes the recovery of attorneys' fees and expenses of litigation where a defendant acts in bad faith. O.C.G.A. § 13-6-11.
 

Where a subcontract requires a subcontractor to coordinate its shop drawings with the work of other trades, the subcontractor is responsible for the failure to coordinate its drawings with conflicting trades, notwithstanding the fact that the general contractor has assumed this same obligation with respect to the owner. High Point Sprinkler Company of Atlanta v. George Hyman Construction Co., 164 Ga. App. 706, 297 S.E.2d 757 (1982).

19. Warranty Claims
 
 
 

Most construction contracts contain warranty provisions which state that the contractor or subcontractor warrants its work for some period of time, normally one year.
 

The general conditions in most standard form contracts state that the warranty period are not an exclusive remedy. In other words they do not limit a breach of contract claim to the one-year period set out in the warranty. The statute of limitations for such claims which arise under a written contract is six years. O.C.G.A. § 9-3-24. SeeMcDevitt & Street Co. v. K-C Conditioning Service, Inc., Ga. Ct. App. A91A1955 (March 18, 1992).
 

There is an implied warranty in every contract for work or services a duty to perform it skillful, careful, diligent, and workmanlike manner. Howell v. Ayers, 129 Ga. App. 899, 202 S.E.2d 189 (1973).
 

Contract provisions in building or construction contracts which attempt to insulate the contractor from its sole negligence are prohibited by statute in Georgia. O.C.G.A. § 13-8-2(b). This statute has been construed as prohibiting warranty language which has this same effect. Bicknell v. Richard M. Hearn Roofing & Remodeling, Inc., 171 Ga. App. 128, 318 S.E.2d 729 (1984).
 

Georgia recognizes the rule that neither caveat emptor nor merger by deed is a viable defense by a builder-seller against a homeowner's tort-negligence and breach of contract claims seeking recovery for latent building construction defects about which the purchaser homeowner did not know and in the exercise of ordinary care would not have discovered, which defects were either known to the builder-seller or in the exercise of ordinary care would have been discovered by him. Worthey v. Holmes, 249 Ga. 104, 287 S.E.2d 9 (1982).
 

There are a variety of warranties under the Uniform Commercial Code which apply to the sale of goods. These warranties include both express and implied warranties, including warranties of merchantability and fitness for an intended purpose.
 

20. Payment
 
 
 

.1 Joint Check Agreements
 
 
 

Suppliers frequently encounter situations in which joint checks (sometimes called "two-party" checks) are issued payable to both the supplier and a subcontractor. Joint checks also may be used where a contractor is faced with a thinly capitalized subcontractor, and the sub's bank insists on the issuance of a check made payable jointly to the sub and the bank. Occasionally, a surety may require that checks be made payable both to the surety and its principal, or may itself issue joint checks to third parties making claim on a payment bond. Although the use of joint checks is common, surprising results may occur if care is not used to properly handle a joint check.
 

What is a joint check? A joint check is considered to be any check made payable to two or more parties (called "payees"). The effect of a joint check differs depending upon how the check is made out. A check payable to "John Doe and John Smith" is a check made payable to joint payees and must be endorsed by both of them before being cashed. A check made payable to "John Doe and/or John Smith" is made payable to alternative payees, and may be cashed by either of them without the signature of the other. Most contractors will be surprised to know that a check made payable to "John Doe/John Smith" also is made payable to alternative payees and may be cashed by either one of them. Ryland Group, Inc. v. Gwinnett County Bank, 151 Ga. App. 148, 259 S.E.2d 152 (1979).
 

Joint checks normally are issued pursuant to a formal joint check agreement. The joint check agreement may be made by a contract (Williams v. McCoy Lumber Industries, Inc., 146 Ga. App. 380, 246 S.E.2d 410 (1978)); by letter agreement (Century Engineering and Construction, Inc. v. American Olean Tile Co., 172 Ga. App. 769, 324 S.E.2d 591 (1984)); or by an oral agreement (All-Phase Electric Supply Company v. Transamerican Insurance Company, 162 Ga. App. 104, 290 S.E.2d 208 (1982)).
 

It is important to remember that a joint check agreement must have consideration in order to be valid. A mere "naked promise" to include a party on a joint check does not create a valid obligation to comply with the promise. Trust Company of Columbus v. Rhodes, 144 Ga. App. 816, 242 S.E.2d 738 (1978). Forbearance from rescinding a contract or forbearance from suing for a breach of contract does, however, constitute sufficient consideration for a joint check agreement. Mann Electric Co. v. Webco Southern Corp., 194 Ga. App. 541, 390 S.E.2d 905 (1990).
 

A joint check agreement does not automatically make the party agreeing to issue the joint check a surety or guarantor of payment for labor and materials delivered to a job. Century Engineering & Construction, Inc. v. American Olean Tile Company, 172 Ga. App. 769, 324 S.E.2d 591 (1984); All-Phase Electric Supply Company v. Transamerican Insurance Company, 162 Ga. App. 104, 290 S.E.2d 208 (1982); Williams v. McCoy Lumber Industries, Inc., 146 Ga. App. 380, 246 S.E.2d 410 (1978).
 

What should be considered before a joint check agreement is signed? First, the prudent contractor or supplier should remember to preserve all lien rights. A joint check agreement should be carefully reviewed to determine whether it contains a lien waiver, lien release, or lien subordination limiting the right to file a lien. Certainly consider filing a lien unless adequate assurance of payment is received from the co-payee or suitable arrangements are made for direct payment by the owner before your lien rights expire.
 

Second, be sure to check every joint check agreement for time limits, notice requirements, or any dollar limit on the total amount of joint checks which will be issued.
 

Third, from the contractor or supplier's standpoint, it is beneficial if the joint check agreement contains a guaranty arrangement assuring the joint payee of payment in the event of a default by the co-payee. Owners usually will object to such an arrangement on the grounds that they have no effective control over the co-payee. Despite that objection, a guaranty agreement may be negotiated where the owner has need of specially fabricated equipment, material, or labor, or where timely delivery is possible only from a particular contractor or supplier. Negotiating leverage is much stronger before delivery than after.
 

Another frequently encountered problem is the endorsement of joint checks. There are numerous endorsement problems, including forged endorsements, missing endorsement of a joint payee, or obliteration of the joint payee's name from the check.
 

A forged endorsement occurs when the joint payee's name is fraudulently signed by the co-payee of a joint check. Falsely endorsing a joint check in this fashion constitutes the criminal act of forgery. Oldham v. State, 179 Ga. App. 730, 347 S.E.2d 698 (1986).
 

A more common problem is the attempt to cash a check without the endorsement of one of the joint payees. A check payable to joint payees must be endorsed by all of them. O.C.G.A. § 11-3-116(b). A bank which is presented with a joint check endorsed by only one of the payees normally will refuse payment of the check. Where, however, a bank cashes a check endorsed by only one of two joint payees, then the bank, the payor, and the payor's surety (if any) all are liable to the non-signing payee. Insurance Company of North America v. Atlas Supply Company, 121 Ga. App. 1, 172 S.E.2d 632 (1970); Refrigeration Supplies, Inc. v. Bartley, 144 Ga. App. 141, 240 S.E.2d 566 (1977); Citizens and Southern National Bank v. Sun Belt Electrical Constructors, Inc. (In reSun Belt Electrical Constructors, Inc.), 64 B.R. 377 (N.D. Ga. 1986). See Annot., 47 A.L.R.3d 537 (1973). A bank does, however, have the limited right to add an endorsement of its own depositor where the check is being deposited to that depositor's account. See O.C.G.A. § 11-4-205.
 

What happens if the names of joint payees are scratched off by the depositor? Again, if all of the payees on a joint check have not endorsed the check, then the bank should refuse to pay the check. It makes no difference that one of the names on a joint check has been scratched off by the depositor. Where a bank accepts a check where the name of a joint payee is obliterated from the check, then the bank accepting the check will be liable for its failure to dishonor the check. First National Bank of St. Paul v. Trust Company of Cobb County, 510 F.Supp. 651 (N.D. Ga. 1981).
 

What if you are the issuer of a check that is improperly cashed without proper endorsement? The issuer of a joint check has a duty to examine the joint check when it is returned by the bank in order to verify that it is properly endorsed. In most states, there is a one-year limitation period on reporting improper payment due to a missing endorsement. Claims made against the bank after that one-year period are untimely. Trust Company Bank v. Atlanta IBM Employees Federal Credit Union, 245 Ga. 262, 264 S.E.2d 202 (1980).
 

The issuer of a joint check also should issue remittance instructions indicating how the funds paid by the joint check are to be allocated. Without such instructions, the payee may apply the funds received to any debt of the payor. Piedmont Engineering & Construction Corp. v. Hanna Paint Company, 95 Ga. App. 605, 98 S.E.2d 137 (1955). This could mean that the payment could be directed to a debt other than the one for which the check was intended. This leaves open the possibility of double payments due to mechanic's liens or claims against a payment bond.
 

Similarly, if the joint payee does not object, the co-payee may allocate funds (as between the two) in any manner he wishes. Lewis v. Sherwin Williams Company, 141 Ga. App. 53, 232 S.E.2d 392 (1977). Thus, the payment could be directed to old invoices, interest, or to debt on unrelated projects. This could expose the joint payee to liability to the issuer of the joint check, particularly where the co-payee asserts valid lien or bond rights against the issuer of the joint check.
 

As a result of these problems, many jurisdictions follow the "Joint Check Rule." Under the Joint Check Rule, a supplier endorsing a joint check without collecting the proceeds of the check is barred from asserting a lien or bond claim based on that debt. This rule is based on the understanding that a joint check arrangement is designed to protect the issuer of the joint check from the supplier's claim, to protect the supplier by ensuring payment, and to protect the owner from potential lien claims. The reasoning behind the rule varies from jurisdiction to jurisdiction, but usually is based upon the legal defenses of payment, release, waiver, or estoppel.
 

In contrast, a refusal to accept a joint check usually does not bar the subcontractor from filing a lien or asserting a claim against a payment bond. This is because the mere issuance of the check does not constitute payment. Without both endorsements, a joint check is for all practical purposes a non-negotiable instrument. Piedmont Engineering & Construction Corp. v. Amps Electric Co., Inc., 162 Ga. App. 564, 292 S.E.2d 411 (1982).
 

What is the effect of the bankruptcy of one of the joint payees? Difficulties frequently encountered in this are include possible preference problems for payments received within ninety days of the filing of the bankruptcy petition, the problems of handling checks which the bankrupt joint-payee has not yet signed, and the problems associated with a two-party check issued in satisfaction of pre-petition shipments. With respect to preference problems, a debtor filing for bankruptcy is presumed to be insolvent during the ninety-day period preceding the bankruptcy filing. Joint checks cashed during this period may be challenged as preferential payments, and a joint payee may be asked to return money received from joint checks to the debtor's bankruptcy estate. In jurisdictions with construction trust fund statutes, or in jurisdictions where courts recognize the construction trust fund theory on equitable grounds, the joint payee usually will prevail against the trustee. Bethlehem Steel Corporation v. Tidwell, 66 B.R. 932 (M.D. Ga. 1986).
 

In states without the protection of an express or implied construction trust fund doctrine, this result is much less certain. In those states, the joint payee must establish an exception to the preference or else return the funds to the bankruptcy estate. Accordingly, in these states a party receiving a joint check should always be mindful of the fact that funds received by way of a joint check may be lost as an avoidable preference at a later date.
 

A related problem occurs where a joint check has been issued but where it has not been signed by the debtor. The courts in trust fund jurisdictions have treated the obligation to sign a joint check as an "executory contract" which the debtor must either accept or reject. In this situation the debtor usually will be encouraged or even directed to sign the joint check, particularly where payment of the check will result in the satisfaction of a claim against the bankruptcy estate. In re Sun Belt Electrical Constructors, Inc., 56 B.R. 686 (N.D. Ga. 1986). Jordan Company v. Bethlehem Steel Corporation, 309 F. Supp. 148 (S.D. Ga. 1970).
 

With respect to the problem of post-petition payments made by a joint check, the bankruptcy court normally will have to deal with the tension between the cash collateral security interest of the debtor's bank as opposed to the claims against the bankruptcy estate by the co-payee. The debtor's bank normally secures loans to the debtor through a security interest taken on the debtor's inventory. Joint checks issued by an owner thus will be considered by the debtor's bank as "cash collateral" arising from the sale of inventory on which it has a security interest. In this situation, most courts find that the bank cannot claim a cash collateral security interest in these proceeds because the funds never become part of the debtor's bankruptcy estate. First Bulloch Bank & Trust Company v. Inca Materials, Inc. (Inca Materials, Inc.), 880 F.2d 1307 (11th Cir. 1989).
 

Problems associated with joint checks can be avoided if they are anticipated and handled properly when they arise. Joint checks are a useful device to assure payment is received by the proper parties and is not diverted for improper purposes. Proper preparation, endorsement, and the use of allocation instructions will avoid most joint check problems.
 
 
 

.2 Pay-When-Paid Clauses
 
 
 

A "pay when paid" clause provides that the general contractor is not obligated to pay its subcontractor until some time after the general contractor has itself been paid by the owner.
 

Pay-when-paid clauses are enforceable in Georgia. Sasser & Co. v. Griffin, 133 Ga. App. 83, 210 S.E.2d 34 (1974).
 

A pay-when-paid clause in a subcontractor's contract may be circumvented where the court finds that a oral agreement apart from the written contract supports the claim. Excavators and Erectors, Inc. v. Bullard Engineers, Inc., 489 F.2d 318 (5th Cir. 1973).
 
 
 

.3 Restrictive Endorsements
 
 
 

An important issue for contractors occurs when the upstream party wishes to make a partial payment with a restrictive endorsement on the check indicating something to the effect that the check is "in full and final payment" or represents "final payment" when in fact the check is for less than the amount the contractor contends is owed. The Georgia courts treat such a payment as an "accord and satisfaction." The check is tendered as a "denovo contract" which is accepted by the other party by cashing the check.
 
 
 

This rule has led to the development of a settlement strategy for resolving claim disputes with downstream parties known as the "check drop." The strategy has been used for years by insurance companies who want to settle claims quickly and who think that the claimant needs or wants the money bad enough to take less than the full amount of the claim. In a "check drop," the upstream party issues a check to the downstream party, but the amount of the check "dropped off" to the downstream party is less than the amount that the downstream party has claimed, hopes to collect, or believes it is owed. The check contains a restrictive endorsement, usually indicating something to the effect that the check is "in full payment of all claims."
 

This strategy is particularly effective where the downstream party still owes money to its subcontractors or suppliers which it cannot pay without payment from the upstream party. Because the check gives the downstream party some portion of the money it claims that it is due (and at its most effective, the balance left is not worth the time and legal expense to fight over) the downstream party may simply sign the check and drop its claim. If the downstream party signs the check and still presses the claim, the upstream party claims a release under the previously cited authority.
 

Where, however, the owner provides the general contractor with numerous checks, each marked "final payment," and the owner and the general contractor are engaged in continuing negotiations concerning pending claims, an issue of fact is created concerning whether the parties had a meeting of the minds with respect to their intentions in issuing and negotiating these checks. Dawson Construction Co., Inc. v. Georgia State Financing and Investment Commission, Ga. Ct. App. Case No. A91A1885 (March 10, 1992). See also State Farm Fire & Casualty Co. v. Fordham, 148 Ga. App. 48(2), 250 S.E.2d 843 (1978).
 
 
 

.4 Submission of Lien Affidavits and Waivers
 
 
 

Construction contracts often contain a condition requiring the submission of a final lien waiver or an affidavit that all bills for labor and materials used on the job have been paid as a condition of final payment.
 

Some courts hold that where a subcontractor has a payment dispute with the general contractor, no liens had been filed except that of the plaintiff-subcontractor, and the time for filing liens had expired, then the subcontractor could not required to waive his lien until he has been paid in full.
 
 
 

.5 Payment Which Is Conditioned on Acceptance
 
 
 

A contract which requires the written acceptance of the contractor's work as a condition precedent for final payment is enforceable under Georgia law. D.I. Corbett Electric, Inc. v. Venture Construction Co., 140 Ga. App. 586, 231 S.E.2d 536 (1976); Jerome Distributors, Inc. v. B.L.I. Construction Co., 142 Ga. App. 776, 237 S.E.2d 13 (1977).
 
 
 

21. Efficiency Claims
 
 
 

Efficiency claims are generally based upon lost productivity caused by some action of the owner, or for which the owner is responsible. The efficiency is usually based upon some measure of production which was achieved by the contractor during the course of construction but which was lost due to some cost for which the contractor was not responsible. The contractor sets up an efficiency claim in order to show an entitlement to recover the difference between cost actually sustained and cost which would have been sustained had more efficient production been possible.
 

Lost productivity claims are based upon a variety of factors. Most of these factors result in a disruption which creates problems in production. These include out of sequence performance, wherein the contractor is asked to perform some tasks prior to the time it is most efficiently performed. Trade stacking is a disruption caused by requiring too many workers or different work in an area, thereby causing interference between the trades. Overtime work is a well-established basis for lost efficiency, since many studies have shown that efficiency falls off during periods of overtime.
 

In order to succeed in a lost efficiency claim, it is necessary for the contractor to establish some reasonable baseline for measurement of efficiency. Such baselines can include previous performance on the current project, similar performance on other projects, the work of industry trade groups, national studies of productivity, or expert testimony. There is virtually no limit to the variety of sources which can be used to establish lost efficiency, although many of the efficiency measures used are subject to attack on the grounds that they do not accurately reflect conditions on the project at issue.
 

Lost productivity and efficiency claims have been recognized in Georgia cases, but no extensive analysis of these claims has been conducted by the Georgia courts. It does seem clear, however, that Georgia courts would recognize the validity of a lost efficiency claim.
 

For example, in Georgia Power Company v. Georgia Public Service Commission, 196 Ga. App. 572, 396 S.E.2d 562 (1990), a public utility rate-making case, the court noted that "productivity" on a construction project is the number of labor man hours required to install one unit of work. The court observed that the lower the required number of hours, the more efficient the work force is and the lower the cost for installing each unit. The court also recognized "production" as the number of units installed in a given time, regardless of the man hours required to do the work. Increasing production is less efficient and more costly, but it can make up time on a schedule. For example, the court noted that the more people who work on a given task, the more quickly it normally gets done, even if each person does not work as efficiently as when that person was working with fewer people. The court thus clearly recognized the basis for lost efficiency claims in Georgia.
 

An earlier Georgia case which also seemed to recognize a lost efficiency claims is Sanford-Brown Company v. Patent Scaffolding Company, Inc., 1990 Ga. 41 33 S.E.2d 422 (1945). In that case, one of the complaints of the plaintiff was that the efficiency of the work of its employees who remained on the job for the plaintiff was reduced by more than 50% due to a fatal fall caused by rented scaffolds.
 

22. Delay and Acceleration Claims
 
 
 

.1 In General
 
 
 

Whether a contractor is entitled to a time extension or additional compensation for a project delay depends upon who or what is responsible for the delay, and whether this excuses the delay.
 

Where a contract states that time is of the essence, and the contractor fails without excuse to timely complete its contractual obligations, then the contractor is liable for any damages caused by its delay. Heard v. Dooly County, 101 Ga. 619, 28 S.E. 986 (1897)(weather delays no excuse); Ladd Lime & Stone Co. v. MacDougald, 32 Ga. App. 709, 124 S.E. 551 (1924)(permitting recovery for cost of idle labor and equipment); State Highway Department v. Hall Paving Co., 127 Ga. App. 625, 194 S.E.2d 493 (1972).
 

Noncompensable delays authorize an extension of the contract completion date, but do not authorize the collection of damages for the delay. Noncompensable delays occur when matters outside the control of the parties excuse the delayed completion.
 

Compensable delays authorize both an extension of the contract completion date as well as collection of damages caused by the delay. Compensable delays occur when one party fails, without excuse, to timely perform a contractual duty which causes a delay in the other party's performance. Travelers Indemnity Co. v. West Georgia National Bank, 387 F. Supp 1090 (N.D. Ga. 1974)(owner delay in granting contractor's requests for time extensions estopps owner from recovering liquidated damages); Rome Housing Authority v. Allied Building Materials, Inc., 182 Ga. App. 233, 355 S.E.2d 747 (1987)(owner's failure to timely issue change order to general contractor); GYMCO Construction Co., Inc. v. Architectural Glass & Windows, Inc., 884 F.2d 1362 (11th Cir. 1989)(general contractor's failure to supply template to subcontractor).
 

Concurrent delays occur when the actions of both parties cause or contribute to the delay. In Georgia, neither party may recover damages for a concurrent delay. J.A. Jones Construction Co. v. Greenbriar Shopping Center, 332 F.Supp. 1336 (N.D. Ga. 1971), aff'd, 461 F.2d 1269 (5th Cir. 1972); Anderson v. Golden, 569 F.Supp. 122 (S.D. Ga. 1982); Malta Construction Co. v. Henningson, Durham & Richardson, Inc., 694 F. Supp. 902 (N.D. Ga. 1988)(holding issue is for trier of fact).
 

Contract language may change this equation by requiring a party to assume the risk of delays which are caused by factors which are not normally considered to be within the control of the parties (for example, weather or labor trouble).
 

Delay and acceleration on a construction project are related concepts. Where the contractor is delayed, acceleration may be required in order to comply with the time requirements of the construction contract unless a time extension is granted.
 

Direct acceleration occurs where an order to accelerate performance is given. The contractor normally is entitled to compensation for any extra expense caused by an acceleration order.

Constructive acceleration occurs where either compensable or noncompensable delays exist, but the contractor's request for an extension of the contract completion date is refused or deferred. If the contractor accelerates its performance and incurs additional expense in order to overcome the delay and achieve the original completion date, then the contractor's performance has been "constructively" accelerated, even though no direct acceleration order has been given. The contractor normally is entitled to compensation for constructive acceleration.
 
 
 

.2 Notice
 
 
 

Where the contract requires the contractor to give notice of any delay as a condition precedent for recovery of the costs of delay, and the contractor fails to timely exercise its rights under that provision and apply for an extension, then the contractor waives its right to a time extension. Dan-D v. Burnsed Enterprises, Inc., 188 Ga. App. 207, 372 S.E.2d 303 (1988); State Highway Department v. Hewitt Contracting Company, 113 Ga. App. 685, 149 S.E.2d 499 (1966).
 

Where the notice alerts the opposite party that the claimant has a grievance against it and reasonably complies with the notice procedure set out in the contract between the parties, the failure to strictly comply with the notice procedures is not fatal to the claim. E.C. Ernst, Inc. v. General Motors Corp., 482 F.2d 1047 (5th Cir. 1973).
 

.3 Liquidated Damages for Delay.
 
 
 

By statute in Georgia, if the parties agree in their contract to assess liquidated damages, unless the agreement violates some principle of law, the parties are bound by this agreement. See O.C.G.A. § 13-6-7. Gibson v. Sheriff, 155 Ga. App. 578, 271 S.E.2d 710 (1980).
 

A liquidated damages provision also limits the owner's recovery to the amount stated in the liquidated damages provision, nothwithstanding that larger actual damages were eventually sustained. Georgia Ports Authority v. Norair Engineering Corporation, 127 Ga. App. 864, 195 S.E.2d 199 (1973).
 

On a multiple prime contract, liquidated damages may be assessed against a contractor who fails to meet milestone dates which result in delays to the other prime contractors. Georgia Ports Authority v. Norair Engineering Corporation, 127 Ga. App. 864, 195 S.E.2d 199 (1973).
 

.4 Waiver or Excuse of Delay Damages.
 

The fact that adverse weather was encountered does not always excuse contract performance. The contractor should anticipate and make provision in the construction schedule for normal amounts of bad weather. Heard v. Dooly County, 101 Ga. 619, 28 S.E. 986 (1897).

The conduct of the owner may waive the contractual due date, however, and where evidence of such a waiver exists, summary judgment granting the owner liquidated damages for the contractor's delay is not warranted. Dan-D v. Burnsed Enterprises, Inc., 188 Ga. App. 207, 372 S.E.2d 303 (1988).
 

A subcontractor's delay may be excused by failure of prime contractor to perform some action which is a constraint on the subcontractor's performance. Gymco Construction Co., Inc. v. Architectural Glass & Windows, Inc., 884 F.2d 1362 (11th Cir. 1989).
 

.5 Penalty vs. Liquidated Damages
 

A provision inserted in a contract to deter a party from breaching it is a penalty and not liquidated damages. The law will enforce liquidated damages but will not enforce a penalty. To distinguish a penalty from liquidated damages, a three-part test must be employed. To enforce the provision as liquidated damages, the court must find:
 

(1) that the injury caused by the breach is difficult or impossible to estimate accurately;

(2) that the parties intended to provide for damages rather than a penalty;

(3) that the sum stipulated is a reasonable pre-estimate of the probable loss.
 

Gibson v. Sheriff, 155 Ga. App. 578, 271 S.E.2d 710 (1980).
 
 

Annot., Contractual provision for per diem payments for delay in performance as one for liquidated damages or penalty, 12 A.L.R.4th 891.
 
 
 

.6 No Damage for Delay Clause
 
 
 

A "no damage for delay" clause seeks to prevent the contractor from recovering for any extra cost associated with suspending or extending the scheduled or anticipated period of performance for the project. In formulating its estimate for the cost of the project, the contractor usually estimates how long the project will take and makes provision for costs accordingly.
 

If the anticipated completion time of the project is extended, the contractor might be in the position of having to pay for extended rentals, wage rates may increase, and project and home office overhead must be carried over a longer period of time. This obviously increases the contractor's costs.
 

The Georgia courts have enforced no damage for delay clauses. State Highway Department v. Wright Contracting Co., 107 Ga. App. 758, 131 S.E.2d 808 (1963). State Highway Department v. MacDougald Construction Co., 102 Ga. App. 254, 115 S.E.2d 863 (1960).
 

Perhaps the leading case in our region dealing with the permissible exceptions to a no damage for delay clauses is E.C. Ernst, Inc. v. Manhattan Construction Company of Texas, 551 F.2d 1026 (5th Cir. 1977). In that case, decided under Alabama law, the court noted the harsh effect of "no damage for delay" clauses and observed that while courts strictly construe such provisions, they also generally enforce them absent a delay (1) not contemplated by the parties under the provision, (2) amounting to an abandonment of the contract, (3) caused by bad faith, or (4) amounting to active interference.
 

Georgia courts also find that delays which were not contemplated by the parties provide an exception to enforcement of a no damage for delay clause. Department of Transportation v. Arapaho Construction Co., 257 Ga. 269, 357 S.E.2d 593 (1987).
 

Some courts outside the state of Georgia have held that a contract with a no damage for delay clause does not preclude the recovery of delay damages where the contract also contains a provision which requires an extension of time for completion and the time of completion is not properly extended in accordance with the requirements of the contract. The courts in these cases usually state that the enforceability of the no damage for delay clause is conditioned upon compliance with the extension provisions during the course of performance under the contract.
 
 

Annot., "Validity and Construction of 'No Damage' Clause with Respect to Delay in Construction Contract, 74 A.L.R.3d 187 (1976).
 

Kovars and Shuham, "'No Damage for Delay' Clauses," Construction Briefings (Oct. 1987).
 
 

23. Negligence Claims and the "Economic Loss Rule"
 
 
 

Under O.C.G.A. § 51-1-11, no privity of contract is required to support a tort action. If, however, the tort results from the violation of a duty arising from a contract, then a different rule applies. In that event, the right of action is confined to the parties and those in privity to that contract.
 

There are express exceptions to this rule for those having a right of action for the injury which is independent of the contract, and for injured persons who are third-party beneficiaries of express or implied warranties under Article 2 of the Uniform Commercial Code. See O.C.G.A. § 11-2-318.
 

O.C.G.A. § 51-1-11 also carves out another limited exception to the privity requirement for product liability actions brought by natural persons who suffer personal injury or property damage from a defective product.
 

For the most part, however, absent some representation made in the course of employment or other duty raised by operation of law, the economic loss rule bars suits by thrid parties for purely economic losses arising from the breach of a construction contract.
 
 

Annot. Recovery for mental anguish or emotional distress, absent independent physical injury, consequent upon breach of contract or warranty in connection with construction of home or other building, 7 A.L.R.4th 1178.

24. Fraud and Misrepresentation Claims
 
 
 

.1 Fraud
 
 
 

The essential allegations of an action for fraud and deceit based on a promise made in bad faith are (1) that the defendant made representations, (2) that at the time they were made he knew they were false, (3) that he made them with the intention and purpose of deceiving the plaintiff, (4) that the plaintiff relied upon the representations, and (5) that the plaintiff sustained loss and damages as a proximate result of them having been made. Cobb and Eldridge, Ga. Law of Damages § 36-13 at 679 (1989).
 
 
 
 
 

.2 Constructive Fraud
 
 
 
 
 

Georgia has a complex series of statutes that provide relief for "constructive fraud." The statutes distinguish actual fraud by stating that it implies moral guilt, while constructive fraud may be consistent with innocence. O.C.G.A. § 23-2-51(c).
 

A misrepresentation of material fact, made willfully to deceive or recklessly without knowledge and acted upon by the opposite party or made innocently and mistakenly and acted on by the opposite party, constitutes legal fraud. O.C.G.A. § 23-2-52.
 

Likewise, suppression of a material fact which a party is under an obligation to communicate constitutes fraud. The obligation to communicate may arise from the confidential relations of the party or from the particular circumstances of the case. O.C.G.A. § 23-2-53.
 

Anything which happens without the agency or through fault of the party affected by it, tending to disturb or confuse this judgment or to mislead him, of which the opposite party takes an undue advantage, is inequity as surprised and as a form of fraud for which relief may be granted in Georgia. O.C.G.A. § 23-2-54.
 

The courts recognize that fraud may be consummated by signs or tricks, or through agents employed to deceive, or by any other unfair way used to cheat another. O.C.G.A. § 23-2-56. Fraud may not be presumed, but being itself subtle, slight circumstances may be sufficient to prove its existence. O.C.G.A § 23-2-57.
 

Confidential relationships may arise from contracts, particularly where one party is so situated as to exercise a controlling influence over the will, conduct, and interest of another. Likewise, this relationship of mutual confidence may arise between partners, principal and agent, and others. O.C.G.A. § 23-2-58. This provision has been held applicable to the relationship between an owner and a contractor. Davis v. Carpenter, 247 Ga. 156, 274 S.E.2d 567 (1981).
 
 
 

.3 False Swearing
 
 
 
 
 

False Swearing occurs where a person who executes a document knows that it purports to be an acknowledgment of a lawful oath or affirmation, in any manner or thing other than a judicial proceeding, and knowingly or willfully makes a false statement. O.C.G.A. § 16-10-71(a).
 

The tort of false swearing may arise where an affidavit from an owner is issued indicating that no improvements or repairs have been made to the property within the period during which a lien that could be filed. Peters v. Imperial Cabinet Company, Inc., 189 Ga. App. 337, 375 S.E.2d 635 (1988).

25. Interference with Contractual Relations
 
 
 

Georgia recognizes the tort of intentional interference with contractual relations. To allege cause of action, a complaint must establish intentional and improper interference with the performance of the contract. Such an allegation presumes knowledge of the plaintiff's interest, or at least of facts that would lead a reasonable person to believe in their existence.
 

This principle has been applied to a party who destroys the work of another. Piedmont Cotton Mills, Inc. v. W.H. Ivey Construction Company, Inc., 109 Ga. App. 876, 137 S.E.2d 528 (1964).
 

The tort has also been alleged in circumstances where determination of a contract has been procured by another. Energy Contractors, Inc. v. Georgia Metal Systems & Engineering, Inc., 186 Ga. App. 475, 367 S.E.2d 324 (1988).
 
 
 

26. Defamation
 
 
 

.1 Slander of Title
 
 
 

Georgia recognizes that the wrongful filing of a mechanic's lien may give rise to an action for slander of title.
 

In order to prove such a cause of action, the plaintiff must establish the elements stated in O.C.G.A. § 51-9-11, which provides that an owner of an estate in land may maintain an action for libelous or slanderous words falsely and maliciously impugning his title if any damage shall have accrued to him therefrom.
 

The owner must allege and prove the publication of slanderous words (for example, the wrongful filing of a lien), their falsity, maliciousness, and special damages. Anderson v. Golden, 569 F. Supp. 122 (S.D.Ga. 1982). See Lincoln Log Homes Marketing, Inc. v. Holbrook, 163 Ga. App. 592, 295 S.E.2d 567 (1982); Carl E. Jones Development, Inc. v. Wilson, 149 Ga. App. 679, 255 S.E.2d 135 (1979).
 

Filing a claim of lien against property for materials furnished to the owner's tenant in an amount exceeding that which the owner agreed to be liable may be actionable, according to the court in F.S. Associates, Ltd. v. McMichael's Construction Company, Inc., 197 Ga. App. 705, 399 S.E.2d 479 (1990).
 

Various defenses to a slander of title action may be asserted by the lien claimant. For example, pursuant to O.C.G.A. § 51-5-8, the filing of a lien and a suit to foreclose the lien are privileged. Eurostyle, Inc. v. Jones, 197 Ga. App. 188, 397 S.E.2d 620 (1990). Privilege also may be claimed where statements are made in good faith to protect the speaker's interests. O.C.G.A. § 51-5-7(3).
 

Matters never before directly addressed by an appellate court also may create a privilege from slander of title suits. See F.S. Associates, Ltd. v. McMichael's Construction Company, Inc., 197 Ga. App. 705, 399 S.E.2d 479 (1990).
 
 
 
 
 

.2 Damage to Business Reputation
 
 
 

Slander or defamation of business reputation exists when charges against another are made with reference to his trade, office, or profession, calculated to injure him. O.C.G.A. § 51-5-4(a)(3).
 

Defamation of business reputation has been urged in a number of contexts relating to the construction industry. Dickey v. Brannon, 118 GA. App. 33, 162 S.E. 2d 827 (1968). (Allegation that one has acted deceitfully in conducting his business affairs is actionable per se).
 

27. Contribution and Indemnity
 
 
 

Under Georgia law, any defendant who has been sued may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to him for all or part of the plaintiff's claim against him. O.C.G.A. § 9-11-14(a).
 

Parties may be brought in based upon concepts of derivative liability, including indemnity, subrogation, express or implied warranty, or some other theory. Insurance Company of North America v. Atlas Supply Company, 121 Ga. App. 1, 172 S.E.2d 632 (1970).
 

28. Product Liability
 
 
 

.1 Uniform Commercial Code
 
 
 

The Uniform Commercial Code applies to contracts for the sale of goods and has no application to contracts for services and labor with an incidental furnishing of equipment and materials. Mingledorff's, Inc. v. Hicks, 133 Ga. App. 27, 209 S.E.2d 661 (1974)(UCC inapplicable to contract for installation of HVAC system); Dixie Lime & Stone Co. v. Wiggins Scale Co., 152 Ga. App. 309, 262 S.E.2d 586 (1977)(UCC inapplicable where there is no allegation that the installed product is defective).
 
 
 
 
 

.2 Strict Liability
 
 
 

In 1968, the predecessor statute to O.C.G.A. § 51-1-11 was amended to abolish the privity of contract defense for actions for breach of implied warranties in tort against the manufacturer by the injured person. This statute set the stage for the adoption of the law of product liability in Georgia.
 

The Georgia Supreme Court subsequently held manufacturers strictly liable for damages proximately caused by a defect in a product related to the product's lack of merchantability and fitness for the use intended. Ellis v. Rich's, Inc., 233 Ga. 573, 353 S.E.2d 340 (1987); Center Chemical Co. v. Parzini, 234 Ga. 868, 218 S.E.2d 580 (1975).
 

This statute also applies to one supplying information or services. Where one supplies information in the course of his business, profession, employment, or in any transaction in which he has a pecuniary interest, he has a duty to use reasonable care and competence in supplying the information to parties who will rely upon it. In circumstances in which the supplier of the information was manifestly aware of the use to which the information was to be put, and intended that it be so used he will have liability limited to a foreseeable personsor a limited class of persons for whom the information was intended, either directly or indirectly, where it can be shown that the representation was made for the purpose of inducing third parties to rely upon the information and act upon their reliance. Robert & Co. Assocs. v. Rhodes-Haverty Partnership, 250 Ga. 680, 300 S.E.2d 503 (1983)(site report).
 
 
 

29. Lender Liability
 
 
 

Under a variety of circumstances, lenders have been alleged to be liable to unpaid contractors, general contractors, and suppliers. See Malloy v. Planters Warehouse & Lumber Company, Inc., 142 Ga. App. 69, 234 S.E.2d 807 (1977); Williams v. Chatham Real Estate Company, 13 Ga. App. 42, 78 S.E. 869 (1913); Gillis v. B.L.I. Construction Company, Inc., 148 Ga. App. 527, 251 S.E.2d 800 (1978); First Florida Building Corporation v. Smith, 530 F. Supp. 496 (N.D.Ga. 1982).
 

For the most part, such suits have been unsuccessful in Georgia.
 

Claimants should consider the possibility of requiring lenders to "marshall assets." See Annot., 76 A.L.R.3d 326 (1977).
 

Cases in other jurisdictions raise the issue of whether the lender has a duty, in disbursing funds, to protect the mortgagor against outstanding or potential liens against the mortgaged property. See Annot., 30 A.L.R.4th 134 (1989).
 
 

30. Prompt Pay Act
 
 
 

.1 Federal (31 U.S.C. § 3901)
 

The Federal Prompt Pay Act is located at 31 U.S.C. § 3109. Pursuant to that statute, and certain regulations promulgated by the Office of Management and Budget, the head of an agency acquiring property or service from a business concern who does not pay the concern for each complete delivered item of property or service by the required payment date shall pay an interest penalty to the concern on the amount of the claim due. This interest penalty is to be computed at the rate the Secretary of the Treasury establishes for interest payments under section 12 of the Contract Disputes Act of 1978 (41 U.S.C. § 611). This rate is published in the Federal Register. 31 U.S.C. § 3902.
 

The regulations promulgated by the Office of Management and Budget require that, within 15 days after an invoice is received, the head of the agency notify the business concern of any defect or any impropriety in the invoice that would prevent the running of the time period specified in the Prompt Pay Act. 31 U.S.C. § 3903.
 

Any claim for interest not paid pursuant to the Prompt Pay Act may be filed as a claim under section 6 of the Contract Disputes Act of 1978. 31 U.S.C. § 3906.
 

Note that because of a dispute between the head of an agency and a business concern over the amount of payment or compliance with a contract, an interest penalty may not be required under the Prompt Pay Act. And all such claims and interest payable during such period are subject to the Contract Disputes Act of 1978. 31 U.S.C. § 3906.
 

.2 State (O.C.G.A. § 13-10-2)
 

Georgia has its own version of a Prompt Pay Act which is contained in O.C.G.A. § 13-10-2.
 

Pursuant to this statute, the state, any county, municipal corporation, authority, board of education, or other public board, body, department, agency, instrumentality, or political subdivision of the state must make at least monthly progress payments based upon the value of the work completed plus the value of materials and equipment suitably stored, insured and protected at the construction site.
 

Retainage under the contract is held to a maximum of 10% of each progress payment. When 50% of the contract value including change orders and other additions to the contract is due and the manner of completion of the contract work and its progress are reasonably satisfactory to the owner or its authorized contract representative, the owner shall withhold no more retainage. O.C.G.A. § 13-10-2(b).
 

At the discretion of the owner and with the approval of the contractor, the retainage of each subcontractor may be released separately as the subcontractor completes his work. O.C.G.A. § 13-10-2(b)(2)(A).
 

The statute authorizes the owner to resume retention if work of the contractor becomes unsatisfactory. O.C.G.A. § 13-10-2(b)(2)(B).
 

At substantial completion, the owner must release the retainage to the contractor. This must occur within 30 days after the contractor invoices the retainage, provided that the contract representative determines that the work is reasonably satisfactory. The statute permits the owner to withhold 200% of the value of any minor, incomplete items. This money is held until the contract representative determines that these items have been completed. The statute requires the reduced retainage to be shared by the contractor and subcontractors as their interest may appear. O.C.G.A. § 13-10-2(b)(C).
 

Within ten days from the contractor's receipt of retainage from the owner, the contractor must pass through payments to subcontractors and shall reduce each subcontractor's retainage in the same manner as the contractor's retainage is reduced by the owner. The only provisos to this obligation are that the value of the subcontractor's work complete and in place must equal 50% of the subcontract value and that the work of the subcontractor is proceeding satisfactorily, and that the subcontractor has provided reasonable assurance of continued performance and financial responsibility to complete his work, including warranty work. O.C.G.A. § 13-10-2(b)(2)(D).
 

Likewise, the subcontractor must pass through to its own lower tier subcontractors in the same manner that the general contractor is required to pass through retainage to him. The same provisos apply to subcontractors. O.C.G.A. § 13-10-2(b)(2)(E).
 

This Prompt Pay Act does not apply to contracts let by the Georgia Department of Transportation for construction, improvement, or maintenance of roads and highways, nor does it apply to any contract whose value or duration at the time of the award does not exceed $150,000 or 45 days in duration. O.C.G.A. § 13-10-2(c).
 

Any contract or subcontract provisions which are inconsistent with the benefits extended by this Act are unenforceable. O.C.G.A. § 13-10-2(d).
 

Nothing contained in the Act precludes a payor from requiring the payee to submit satisfactory evidence that all payrolls, material bills, and other indebtedness connected with the work have been paid. O.C.G.A. § 13-10-2(e).
 
 
 
 
 

.3 Water and Sewer Contracts
 
 
 

In 1992, the Georgia Legislature enacted O.C.G.A. § 13-10-20, which is a procedure for retention of contractual payments by the state or its political subdivisions for the improvement, maintenance, or repair of water or sewer facilities.
 

This statute provides that the state and its instrumentalities may not require retention exceeding 10% of the gross value of the completed work provided for in a water or sewer contract. Likewise, after 50% of the work on the project has been completed, retainage may be discontinued. O.C.G.A. §13-10-20(a).
 

Retainage must be invested at the current market rate and any interest earned on the retained amount by such department, agency, or instrumentality of the state must be paid to the contractor when the project has been completed. O.C.G.A. § 13-10-20(a).
 

Final payment of the retained amounts are made after certification by the engineer that the project has been satisfactorily completed and accepted. Payment of interest is made after certification by the engineer that the work was completed within the time specified and within the price specified within the contract. O.C.G.A. § 13-10-20(b).
 

At substantial completion of the work, and upon a determination that the work is reasonably satisfactory, the government must within 30 days after being invoiced pay retainage to the contractor. The government may withhold an amount equal to 200% of the value of each incomplete minor item which is remaining. This sum shall be held until such items are completed by the contractor.
 
 

31. Unfair Business Practices
 
 
 

Georgia has adopted a statute called the "Fair Business Practices Act of 1975" which prohibits a wide variety of unfair and deceptive practices in the conduct of any trade or practice. O.C.G.A. § 10-1-390.
 

The Fair Business Practices Act relates to consumer transactions such as the sale, purchase, lease, or rental of goods, services, real or personal property, which are primarily for personal, family, or household purposes. O.C.G.A. § 10-1-392(a)(3).
 

Prohibited transactions include representing that goods or services are of a particular standard or quality, disparaging the goods, services, or business of another by false or misleading representations, false advertising, making various types of false statements, and other practices. O.C.G.A. § 10-1-393.
 

The statute authorizes civil penalties, cease and desist orders, and other relief, including civil and equitable remedies by individuals. The civil remedies available to individuals include actual and exemplary damages, as well as the recovery of attorneys' fees. O.C.G.A. § 10-1-399.
 

32. Antitrust
 
 
 

The anti-trust laws of the United States prohibit any agreements in restraining of trade. Specific prohibitions include:
 

Agreeing to fix and regulate prices, mark-ups or the conditions or terms of a sale;
 

Agreeing to establish geographic trading areas, allocate markets or customers, or classify certain customers as being entitled to preferential treatment;
 

Participating in any plan designed to induce any manufacturer or distributer to sell or refrain from selling, or discriminate in favor of or against any particular customer or class of customer;
 

Agreeing to limit or restrict the quantity of a product produced;
 

Participating in any plan designed to control the means of transportation or channels through which products may be sold; and
 

Participating in any plan which has the effect of discriminating against or excluding competitors.
 

The anti-trust laws of the United States have been asserted in connection with bid rigging, price fixing and sole source specifications. Parties injured by anti-trust violations may recover treble damages and other relief. In addition, criminal prosecution is possible.
 
 
 

33. Bad Faith
 
 
 

Where a defendant acts in bad faith, has been stubbornly litigious, or has caused the plaintiff unnecessary trouble and expense, Georgia law permits the plaintiff to plead and recover the expenses of litigation. O.C.G.A. § 13-6-11.
 

This statute has been applied on countless occasions in the context of construction claims. See Gist v. Ferguson Construction Co,, Inc., 197 Ga. App. 625, 398 S.E.2d 862 (1990); Lineberger v. Williams, 195 Ga. App. 186, 393 S.E.2d 23 (1990); McDonald v. Winn, 194 Ga. App. 459, 390 S.E.2d 890 (1990); Gunnin v. Parker, 194 Ga. App. 426, 390 S.E.2d 596 (1989); Matthews v. Neal, Greene & Clark, 177 Ga. App. 26, 338 S.E.2d 496 (1985); Jackson v. Brinegar, Inc., 165 Ga. App. 432, 301 S.E.2d 493 (1983); Ideal Pool Corp. v. Champion, 157 Ga. App. 380, 277 S.E.2d 753 (1981); Georgia-Carolina Brick & Co. v. Brown, 153 Ga. App. 747, 266 S.E.2d 531 (1980).
 
 

34. Pricing Claims
 
 
 

.1 Pricing Methods
 
 
 

There are several methods of pricing construction claims. Each of these methods may be acceptable, depending upon the facts and circumstances of each case.
 

The preferred method for pricing construction claims is the "actual cost" method. This method uses actual cost of the labor and material expended, as reflected in the records of the contractor. Ideally, the contractor will establish a cost code for the labor and material expended as a result of the claim, so as to permit the final job cost report for the project to reflect the actual cost of the claim.
 

A second method for pricing construction claims is the "total cost method." This is one of the most common methods of pricing a construction claim, because it is the easiest method. This method uses the "as planned" expenditures for the project and compares them to the "as built" expenditures for the project. The difference between the two is the amount of the claim.
 

While this method of pricing the claim has the virtue of simplicity, the primary problem with the total cost method is that it assumes that the contractor's estimate is completely accurate and attributes all extra costs experienced by the contractor to the claim. The total cost method ignores any added costs which were the responsibility of the contractor. For example, some project costs may be higher than planned due to the estimating or construction errors, as well as many other problems which obviously were not caused by the owner. For this reason, the total cost approach should only be used where no other method of pricing the claim is available.
 

A third method of pricing the claim is called the "modified total cost method." This method also uses the difference between the "as planned" versus "as built" cost of the project as the basis for the claim, but adjustments are made in the claim to account for any other factors which might have increased the cost of construction. By subtracting all of the other possible costs which are not attributable to the owner, and validating the original estimate, the contractor considerably increases the credibility of the claim.
 

Regardless of the method used to price the claim, the contractor should accurately attempt to price the claim without inflating or distorting the value of the claim. If the contractor uses higher overhead and profit figures in the claim than were used in the initial estimate, then the contractor should be prepared to explain why those figures are justified.
 

It also goes without saying that if the contract sets out a method and procedure for pricing the claim, this method should be followed by the contractor, if possible. Most standard form contracts now provide several methods for pricing claims, including mutual agreement on a fixed price, unit pricing, or time and materials billings.
 

The contractor should remember to include any time extensions or schedule impacts caused by the claim.
 
 
 
 
 
 
 

.2 Lost Profits
 
 
 

Georgia follows the general rule that bars the recovery of lost profits which are remote or speculative. In order to overcome this obstacle, the courts usually will require evidence of lost orders or contracts which could not be filled. Developing evidence of prospective profits may be difficult or impossible where the claimant is operating a new business which is not yet profitable.
 
 
 

.3 Consequential Damages
 
 
 

The contractor should consider including within the claim any consequential damages which flow from the breach of contract, such as lost bonding capacity. Such damages must have been within the contemplation of the parties at the time of the breach in order to be recovered. The best way to assure that this standard is met is to notify the owner in writing of any consequential damages which will be encountered as a result of the claim.
 
 
 
 
 

.4 Field and Home Office Overhead
 
 
 

The Georgia courts have not recognized the Eichleay or Capital Electric line of cases which recognize that the contractor is entitled to recover that portion of extended home office and field overhead arising from any delay on the project.
 
 
 
 
 

35. Interest
 
 
 

O.C.G.A. § 7-4-15 permits the recovery of prejudgment interest on all liquidated demands where "the sum to be paid is fixed and certain." Such a claim bears interest from the time the debtor becomes "liable and bound to pay."
 

Where an interest rate is not established by written contract, a lien claimant may recover simple interest at the legal rate of 7% per annum. Horkan v. Great American Indemnity Company, 211 Ga. 690, 88 S.E.2d 13 (1955). See O.C.G.A. § 7-4-2(a)(1)(A).
 

Interest at the higher rate of 1.5% per month, as set out in O.C.G.A. § 7-4-16, is permitted for unpaid debts on commercial accounts. Where, however, the defendant is not an account debtor of the lien claimant, then interest may be recovered against that defendant only at the legal rate of 7% per annum simple interest, and not at the higher rate set out in O.C.G.A. § 7-4-16. Turner Construction Company v. Electrical Distributors, Inc., Case No. A91A1932 (Ga. Ct. App., Feb. 7, 1992).
 

Interest may not be claimed on the amount of the lien where there is no agreement or judgment fixing the principal amount as liquidated. Cowart v. Reeves, 80 Ga. App. 161, 55 S.E.2d 911 (1949).

Where the claim is liquidated, however, it bears interest from the time the party becomes liable and bound to pay it. Carmichael Tile Co. v. National Surety Co., 166 Ga. 709, 144 S.E. 250 (1928). A debt is liquidated when it is certain how much is due and when it is due. Sunderland v. Vertex Associates, Inc., 199 Ga. App. 278, 404 S.E.2d 574 (1991).
 

A plaintiff may recover prejudgment interest at the legal rate from the date of breach, even on an unliquidated claim. O.C.G.A. § 13-6-13.
 

The Georgia courts have permitted the recovery of interest on lien claims from the date of maturity of the lien claim. David v. Marbut-Williams Lumber Co., 32 Ga. App. 157, 122 S.E.906 (1924).
 

After a judgment is obtained, the claimant may recover interest at the rate of 12% per annum, or another rate is specified in the contract or obligation. O.C.G.A. § 7-4-12.
 
 
 

36. Attorneys' Fees
 
 
 

.1 In General
 
 
 

In Georgia, attorneys' fees are recoverable only when authorized by statute or by contract. City of Lawrenceville v. Heard, 194 Ga. App. 580, 391 S.E.2d 441 (1990). The recovery of attorneys' fees is authorized from a wide variety of statutory sources.
 

Attorneys' fees may be recovered for bad faith, stubbornly litigious conduct, or causing the plaintiff unnecessary trouble or expense, pursuant to O.C.G.A. § 13-6-11. Ballenger Corporation v. Dresco Mechanical Contractors, Inc., 156 Ga. App. 425, 274 S.E.2d 786 (1980)(bad faith); Khoury v. Skidaway Island Engineering, Inc., 172 Ga. App. 503, 323 S.E.2d 692 (1984)("stonewalling" in the absence of a bona fide controversy causes "unnecessary trouble and expense").

Note that the defendant may seek attorneys' fees under O.C.G.A. § 13-6-11 only if it has an independent cause of action asserted against the plaintiff in a counterclaim. In other words, a counterclaim for collection of attorneys' fees cannot be filed against the plaintiff merely because the plaintiff sued the defendant. Ballenger Corporation v. Dresco Mechanical Contractors, Inc., 156 Ga. App. 425, 274 S.E.2d 786 (1980).
 

Pursuant to O.C.G.A. § 51-7-80, etseq., a claim for reasonable attorneys' fees and the expenses of litigation is available to punish or deter abusive litigation. Such claims must be brought after giving due and proper statutory notice, and within 45 days after the final disposition of the underlying action.
 

Georgia has the equivalent of the federal "Rule 11" sanctions in O.C.G.A. § 9-15-14, which provides for the assessment of attorneys' fees against a party who asserts a "claim, defense, or other such position with respect to which there existed such a complete absence of any justiciable issue of law or fact that it could not be reasonably believed that a court would accept the asserted claim, defense, or other position."
 

The taking of a frivolous appeal also permits the recovery of a penalty, pursuant to O.C.G.A. § 5-6-6. Ayers v. Advertising Concepts, 169 Ga. App. 400, 312 S.E.2d 876 (1984).
 

.2 Attorneys' Fees in Arbitration
 
 
 

Attorneys' fees may be awarded in arbitration proceedings if the underlying contract provides that the prevailing party is entitled to recover attorneys' fees. Hope & Associates, Inc. v. Marvin M. Black Co., Ga. Ct. App. Case No. A92A1096 (Sept. 24, 1992).
 

This issue previously had been in some doubt due to two cases interpreting O.C.G.A. § 9-9-17 (formerly codified as O.C.G.A. § 9-9-97(a)). The court overruled Walton Acoustics, Inc. v. Currahee Construction Co., Inc., 197 Ga. App. 659, 399 S.E.2d 265 (1990) and Hughes & Peden v. Budd Contracting Co., 193 Ga. App. 656, 388 S.E.2d 753 (1989), both of which had held that the allowance of attorneys' fees in arbitration was improper under this statute.
 

37. Statutory Penalties
 
 
 

.1 Insurance
 
 
 

Georgia has a bad faith statute applicable to insurance companies. Under the provisions of O.C.G.A. § 33-4-6, in the event of a loss which is covered by a policy of insurance and the refusal of the insurer to pay the same within 60 days after a demand has been made by the holder of the policy and a finding has been made that such refusal was in bad faith, the insurer is liable to pay the insured, in addition to the loss, up to 25% of the liability of the insurer for the loss and all reasonable attorneys' fees for the prosecution of the action against the insurer.
 

Filing a proof of loss is not equivalent to a demand for payment under this Code section. Guarantee Reserve Ins. Co. v. Norris, 219 Ga. 573, 134 S.E.2d 774 (1964).
 

To recover attorneys' fees or a penalty for bad faith, a demand for payment of the loss must be made more than 60 days prior to the filing of the suit. Hanover Ins. Co. v. Hallford, 127 Ga. App. 322, 193 S.E.2d 235 (1972).
 
 
 

.2 Surety
 
 
 

Georgia has a bad faith statute applicable to compensated sureties. Under the provisions of O.C.G.A. § 10-7-30, the refusal of the corporate surety to commence the remedy of a default covered by its bond and to make payment to an obligee under the terms of the bond within 60 days after receive of a notice of default, can subject the surety to liability for a 25% penalty and reasonable attorney's fees for the prosecution of the case against the surety. The application of this section is in derogation of the common law and must be strictly construed. Traveler's Indemnity Company v. Sasser & Company, 138 Ga. App. 361, 226 S.E.2d 121 (1976).
 

One of the most common failings of the surety is its failure to investigate all of the facts and circumstances surrounding the alleged default by the principal. Where there is an allegation that the principal has defaulted, the surety should exercise reasonable diligence in investigating the facts and circumstances of the default, and should make an independent determination of the liability of its principal.
 

Often, the surety relies upon the efforts of the principal to investigate the claim. Such a delegation of the surety's duty to investigate could raise questions about this efficiency of the surety's investigation, particularly where it is in the principal's interest to convince the surety that the principal is not in default.
 

Failure to wait at least 60 days after making demand for payment before filing suit constitutes an absolute bar to the statutory claim for a bad-faith penalty and attorneys fees. Columbus Fire & Safety Equipment Co. v. American Druggist Insurance Co., Inc., 166 Ga. App. 509, 304 S.E.2d 471 (1983).
 

The provisions of this penalty statute have been held applicable to compensated sureties.
 
 
 

38. Punitive Damages
 
 
 

By statute in Georgia, unless otherwise provided by law, exemplary damages shall never be allowed in cases arising on contracts. O.C.G.A. § 13-6-10.
 

Where the breach of contract action is joined with a tort action, such as fraud, then punitive damages may be recoverable in the tort action.

39. Statutes of Limitation and Repose
 
 
 

The statute of limitations for a suit to recover damages for injury to reputation is one year. O.C.G.A. § 9-3-33.

The statute of limitations for a suit for personal injuries is two years. O.C.G.A. § 9-3-33.
 

The statute of limitations for a suit to recover for damage to real property is four years. O.C.G.A. § 9-3-30.
 

The statute of limitations for a suit to recover for damage to personal property is is four years. O.C.G.A. § 9-3-31.
 

The statute of limitations for a suit on an oral contract is four years. O.C.G.A. § 9-3-26.
 

The statute of limitations for a suit on a written contract is six years. O.C.G.A. § 9-3-34.
 

The statute of limitations for a suit on a contract under seal is twenty years. O.C.G.A. § 9-3-23.
 

The fact that the damage was not discovered is no defense to the running of the statute of limitations. Corporation of Mercer University v. Gypsum Company, 258 Ga. 365, 368 S.E.2d 732 (1988). The Mercer case overruled Lumberman's Mutual Casualty Co. v. Patillo Construction Co., Inc., 254 Ga. 461, 330 S.E.2d 344 (1985), which had held that the "discovery rule" applied in Georgia.
 

Where a defendant fraudulently prevents a potential plaintiff from learning of the existence of a claim, this fraud tolls the statute of limitations. O.C.G.A. § 9-3-96.
 

Georgia also has a statute of repose which states that all causes of action arising from the design or construction of a building must be brought within eight years after substantial completion of the work. O.C.G.A. §9-3-51.
 
 
 
 
 
 

40. Waiver/Estoppel
 
 
 

.1 In General
 
 
 

Waiver is the conscious relinquishment of a known right.
 

Estoppel arises where a party, by its conduct, causes another party to act or prevents another party from acting to its detriment.
 
 
 

.2 Making or Accepting Final Payment
 
 
 

Waiver issues frequently arise in the context of final punchout of the project. Contractors frequently claim that the owner's final payment constitutes an express or implied waiver of any other or further claims against the general contractor, or acceptance of the work "as is" by the owner. A number of the standard-form contracts commonly used in the construction industry contain clauses which also may affect the continued viability of certain claims after final payment by the owner.
 

Receipt of final payment alone does not constitute an accord and satisfaction. Landon v. Lavietes, 156 Ga.App. 123, 274 S.E.2d 120 (1980); Puppy Love Kennel, Inc. v. Norton, 158 Ga. App. 69, 279 S.E.2d 213 (1981).
 
 
 

.3 Acceptance of Construction
 
 
 

The simple occupancy of the building by the owner does not waive the owner's right to hold the contractor responsible for construction defects, particularly where the final accounting for the project has not been completed. Cannon v. Hunt, 116 Ga. 452, 42 S.E. 734 (1902).
 

Failure to call upon the contractor to repair defects, and acceptance and use of the building without complaint by the owner, are tacit recognition by the owner of completion of the contract and of the obligation of the owner to pay the contractor. Porter v. Wilder & Son, 62 Ga. 520 (1879).
 
 
 

.4 Continued Performance After Breach
 
 
 

Continued performance of a contract after a material breach of the contract by the opposite party may waive the right to terminate the contract for this breach, but not the right to collect damages for the breach. Gymco Construction Co., Inc. v. Architectural Glass & Windows, Inc., 884 F.2d 1362 (11th Cir. 1989).
 
 
 

.5 Failure to Act
 
 
 

The owner's delay in granting contractor's requests for time extensions may estopp an owner from recovering liquidated damages. Travelers Indemnity Co. v. West Georgia National Bank, 387 F. Supp. 1090 (N.D. Ga. 1974).
 
 

J. Sweet, Completion, Acceptance and Waiver of Claims: Back to Basics, 17 Forum 1312 (1982).
 
 
 

41. Hold Harmless and Indemnity Clauses
 
 
 

Hold harmless and indemnity clauses are extremely common in the construction industry. They are an acceptable means of allocating the risk of loss from one party to another, provided that both parties understand the risk which has been allocated and the responsibilities attendant to that allocation of risk.
 

Georgia law prohibits the enforcement of an indemnity provision in a construction contract which attempts to provide indemnity for the sole negligence of the party indemnified. Such contracts are considered void as against public policy. O.C.G.A. § 13-8-2(b).
 

Such contract provisions have been construed as requiring the indemnifying party to provide insurance for the benefit of the indemnified party. Tuxedo Plumbing and Heating Company, Inc.v Lie-Nielsen, 245 Ga. App. 27, 262 SE2d 794 (1980);

42. Performance Defenses
 
 
 

.1 Impossibility
 
 
 

If performance becomes impossible by an act of God, or from some act or fault of the other party, such impossibility excuses performance. O.C.G.A. § 1-3-3(3).

If performance of the terms of a contract become impossible as a result of an act of God, such impossibility shall excuse nonperformance except where by proper prudence such impossibility might have been avoided by the promisor. O.C.G.A. § 13-4-21.
 

Acts of God include any accident produced by physical causes which are irresistible, such as lightening, storms, perils of sea, earthquakes, inundations, sudden death or illness. Acts of God exclude "all idea of human agency." Cannon v. Hunt, 113 Ga. App. 501, 38 S.E. 983 (1901).
 
 
 

.2 Commercial Impracticability
 
 
 

The courts in Georgia rejected the defense of "economic impossibility" in Jerome Bradford Construction Co., Inc. v. Pinkerton & Laws Co., 174 Ga. App. 854, 332 S.E.2d 26 (1985), finding that where the contractor is aware of the requirements of the contract and the contract imposes no duty on the general contractor to allow for a change, the mere fact that the job proves to be more difficult than anticipated does not form the basis for any legal relief.
 

The Georgia courts have frequently held that a contractor performing work under a fixed price contract is not entitled to additional compensation merely because unforeseen difficulties causing additional expense are encountered in the performance of the contract. This is particularly true where the contractor knowingly assumes the risk of performance in the contract. Decatur County v. Praytor, Houston & Wood, 165 Ga. 742, 142 S.E.2d 678 (1928).
 

The Georgia courts have even rejected this form of relief even where the conditions were unknown by either party to the contract. Anderson v. Golden, 569 F.Supp. 122 (S.D. Ga. 1982)(subcontractor assumed risk of soil conditions).
 
 
 

.3 Non-Performance by Opposite Party (O.C.G.A. § 13-4-23)
 
 
 

Georgia law provides that non-performance by the opposite party excuses the other party from performance. O.C.G.A. § 13-4-23.
 
 
 

.4 Substantial Compliance

(O.C.G.A. § 13-4-20)
 
 
 

Georgia law provides that performance must be substantially in compliance with the spirit and the letter of a contract, and must be completed within a reasonable time. O.C.G.A. § 13-4-28.
 
 
 
 
 

43. Mistake
 
 
 

.1 Reformation for Mutual Mistake
 
 
 

Reformation is available in Georgia only in cases of mutual mistake. O.C.G.A. § 23-2-31.
 

In Georgia, mutual ignorance of fact (i.e., lack of knowledge of some fact) does not afford a basis for equitable relief from the contract. See O.C.G.A. § 23-2-28. Mutual ignorance of fact is not considered the equivalent of a mutual mistake of fact under Georgia law.
 
 
 
 
 

.2 Rescission for Unilateral Mistake
 
 
 

"Unilateral" mistakes of fact include mistakes such as mathematical or clerical errors, omission of bid items, erroneous assumptions, factual misunderstandings or misinterpretations. Where a bid error of this type occurs, contractors are often given relief from their bid mistake.
 

Other types of unilateral mistakes go to the judgment of the contractor in submitting its bid. These mistakes include erroneous estimates of the time to complete the project or the crews or equipment needed.
 

Likewise, unilateral mistakes caused by mere ignorance of the facts or of the legal or statutory requirements of the contract, normally do not form the basis for legal relief. In the absence of fraud, artifice, or deception, it is difficult to secure relief for these types of mistakes in Georgia. O.C.G.A. §§ 23-2-27, 23-2-29.
 

The remedy of cancellation or "recission" of the contract is available for unilateral mistakes. See O.C.G.A. § 23-2-31.
 
 
 

.3 Duty to Investigate
 
 
 

Under Georgia law, relief from mistakes of fact may only be obtained if the complaining party applies for relief within a reasonable time. O.C.G.A. § 23-2-24.
 

In the absence of fraud, misplaced confidence, or some other misrepresentation, if a contractor though the exercise of reasonable diligence could have determined the true facts then equitable relief is not available. O.C.G.A. § 23-2-29.
 

44. Non-Resident Contractors Act
 
 
 

Georgia law requires every construction contractor who is a non-resident of the state of Georgia to register pursuant to the Georgia Non-Resident Contractors Act, O.C.G.A. § 48-13-32.
 

Non-resident contractors who fail to register in accordance with the Act are barred from maintaining an action to recover payment for performance on the contract in the courts of the state of Georgia. O.C.G.A. § 48-13-37. See Lenox Hotel Company v. Charter Builders, Inc., 717 F. Supp. 1558 (N.D.Ga. 1989).
 

Substantial compliance with the statute is sufficient. D.O.T. v. Moseman Construction Company, 260 Ga. 369, 393 S.E.2d 258 (1990).
 

If a suit is dismissed under the Non-Resident Contractors Act, it is dismissed without prejudice to refiling. Clover Cable of Ohio, Inc. v. Heywood, 260 Ga. 341, 392 S.E.2d 855 (1990).
 

45. Agency
 
 
 

It is extremely important for the contractor to know the authority of those who the contractor deals with every day on a project. Where a contract set out that the owner may act only through a designated project representative, the contractor should obtain interepreation of plans and specifications or authorization to perform extra work only from this representative.
 

Where an agent of the owner authorizes the performance of extra work in writing, but the owner subsequently denies liability for the extra work, a jury issue is presented as to whether the agent had authority to order the work on behalf of the owner. Highsmith v. National Linen Service Corp., 63 Ga. App. 112, 10 S.E.2d 237 (1940).
 

In Gymco Construction Co., Inc. v. Architectural Glass & Windows, Inc., 884 F.2d 1362 (11th Cir. 1989), an on-site representative was held not to have authority to make changes in contracts; a written change order should have been obtained.
 

46. Sovereign Immunity
 

Pursuant to the Georgia State Constitution, Article I, § II, ¶ IX, the State of Georgia has sovereign immunity immunizing it from suit for its actions and the actions of all of its departments and agencies. Sovereign immunity can only be waived by an act of the general assembly which specifically provides that sovereign immunity is waived and provides for the extent of such waiver.
 

The general assembly has enacted many waivers of sovereign immunity.
 

Officers and employees of the state and all its departments and agencies are subject to suit and may be liable for injuries or damages caused by the negligent performance of, or negligent failure to perform, their ministerial functions. They also may be liable for injuries and damages if they act with actual malice or with actual intent to cause injury in the performance of their official functions. Georgia Constitution, Article I, § II, ¶ IX(d).
 

The defense of sovereign immunity is waived as to any contract action arising from the breach of a written contract with the State of Georgia, its departments, agencies and authorities, and suit may be filed on such actions in the Superior Court of Fulton County as well as any other location where venue would otherwise be present. O.C.G.A. § 50-21-1.
 
 
 

47. Failure of Consideration
 

Any condition precedent or subsequent not complied with, including insufficiency or failure of consideration, or any act of the opposite party by which the obligation of the contract has ceased, may be pleaded as a defense in Georgia. O.C.G.A. § 13-5-8.
 

Specifically, if the consideration for a promise, apparently good or valuable, fails either wholly or in part before the promise is executed, the failure of consideration may be pleaded in defense to the promises. O.C.G.A. § 13-5-9.
 

Failure of consideration is an affirmative defense which must be especially pled in Georgia. O.C.G.A. § 9-11-8(c).
 

If the failure of consideration is only partial, an apportionment shall be made according to the facts of each case. O.C.G.A. § 13-5-9.
 

A defense of failure of consideration is often pled as a defense to defective construction. The proof must substantiate to what the extent the consideration has failed so that it will be possible for the jury or the court to determine the extent of the failure of consideration. Absence of such proof, the defense of partial consideration must fail. Anchor Sign Company of Georgia, Inc. v. PS Heating & Air Conditioning Company, 125 Ga. App. 207, 186 S.E.d 892 (1971).
 

48. Accord & Satisfaction
 

An accord and satisfaction occurs where the parties to an agreement, by some subsequent agreement, have satisfied the former agreement, and the latter agreement has been executed. The execution of a new agreement may itself amount to a satisfaction of the former agreement where it is so expressly agreed by the parties. Without such an agreement, if the new premise if founded on a new consideration, the taking of it is a satisfaction of the former agreement. O.C.G.A. § 13-4-101.
 

A creditor's agreement to receive less than the amount of its debt cannot be pleaded as an accord and satisfaction unless it is actually executed by the payment of money, the giving of additional security, the substitution of another debtor or some other new consideration. O.C.G.A. § 13-4-103(a).
 

Accord and satisfaction is often argued when a check is tendered, marked "payment in full." An accord and satisfaction by such a payment does not exist unless a bonafide dispute or controversy exists to the amount due and such payment is made pursuant to an independent agreement between the creditor and the debtor that such payment shall satisfy the debt. O.C.G.A. § 13-4-103(b).

Where an accord and satisfaction exists, however, it is binding upon both of the parties to the agreement. O.C.G.A. § 4-104.

49. Novation
 

Any change in the nature or terms of a contract can create a novation. A novation has four essential elements:
 

(1) a previously valid obligation,
 

(2) the agreement of all of the parties to a new contract,
 

(3) the extinguishment of the old contract, and
 

(4) the validity of the new contract.
 

The concept of novation is important in construction claims, particularly as it may apply to the allegations of a surety. For example, a novation of an underlying obligation was bonded by the surety, without the consent of the surety, discharges the surety. O.C.G.A. § 10-7-21.
 

Novations may be waived by the provisions of the bond stating that any change in the underlying contract does not require a notice to the surety.
 

In Georgia, compensated sureties are not afforded the same level of protection as uncompensated sureties. For this reason, a compensated surety may not be able to take advantage of a novation defense.
 

One way of avoiding the novation defense is to make sure that any new agreement entered into by the parties expressly states that it does not extinguish any previous contracts between the parties. This will prevent the extinguishment of the old contract and will eliminate one of the essential elements of a novation.
 
 
 
 
 

50. Set Offs
 

After a breach of contract, no contractual relationship continues to exist. Where a subcontractor, for example, fails to complete a project and therefore breaches a contract with the general contractor, the general contractor is entitled to set off the amount of the incomplete work for any amounts owing to the subcontractor. Simonton Construction Company v. Pope, 213 Ga. 360, 99 S.E.2d 216 (1957).
 

51. Insurance
 

Insurance policies provide an avenue for recovery of many construction claims.
 

One of the most important policies is the contractor's comprehensive general liability insurance policy. The typical CGL policy provides coverage for premises and operations liability, elevator liability and independent contractor's protective liability. This policy is now frequently called a "commercial" general liability policy.
 

A second important category of insurance is builders risk insurance. This policy provides both property damage protection and liability coverage. Usually the contractor will have the opportunity to select various "endorsements" which can add additional protection to the builders risk policy. If the project is damaged during the course of construction, the contractor's builders risk insurance may provide coverage to reimburse the contractor for this loss.
 

Workers compensation insurance is required by law in Georgia. If a subcontractor does not obtain workers compensation insurance for its employees, then the general contractor may be liable under its own policy for injuries to these employees. O.C.G.A. § 34-9-8.
 

Regardless of the type of insurance involved, several general practices and procedures should be followed in making a claim. First, the claim should be presented as soon as possible to the carrier, and in as much detail as possible. Although contacting the insured by telephone is adequate to place the insurer on notice, the telephone notice should be followed by written notice confirming the telephone call.
 

Second, demand for payment should be made immediately. The mere filing and submission of a claim does not constitute a demand for payment of the claim. It is helpful to send a demand for payment of any proof of claim which is submitted to an insurance company. The letter should clearly state that payment of the claim is demanded immediately and instruction should be given for how the check is to be made out by the insurer.
 

Third, it should always be remembered that insurance companies have subrogation rights which permit them to recover losses paid out to their insureds. Most policies prohibit any action by the insured which imperils the subrogation rights of the insurance company. Accordingly, a contractor should carefully consider the implications of signing any release which has the affect of releasing a party causing damage to the contractor. For example, if a subcontractor starts a fire which damages the general contractor's work, the general contractor may recover for these losses from its insurance company. The insurance company will then attempt to recoup this payment from the subcontractor who caused the fire. If, in the interim, the general contractor has signed a release of the party at fault, perhaps after having received some payment from the defendant, then the insurance company for the contractor may be precluded from making this recovery. This may be a violation of the policy and the general contractor may be held liable for its failure to protect the subrogation interest of the insurance company.
 
 

52. Arbitration
 

1. In General
 
 
 

In deciding whether to insert an arbitration clause in a construction contract, a number of advantages and disadvantages should be considered.
 

The arbitration will be conducted before a panel of experts selected by the parties from a list maintained by the AAA. These experts know the construction industry and are familiar with its special problems and challenges.
 

By the same token, these experts bring with them their own point of view on many matters. It may be difficult for an arbitrator to be neutral about matters with which they have great personal familiarity.
 

Although the arbitration process has its own delays, an arbitration decision usually can be obtained much faster than a court decision, usually within a matter of a few months from the selection of the arbitrators.
 

Fees for arbitration are based on the amount in controversy and can be quite high if the amounts in controversy are large. Fees usually must be paid in advance and may not be fully refunded even if the arbitration does not go forward.
 

Unless a neutral site can be agreed upon, the AAA will usually hold the arbitration hearing in its offices. A fee may be charged for use of the arbitration room, particularly if the hearing extends over several days.
 

The arbitrators must be paid by the parties. The first arbitration hearing is free, but this free day may be taken up with a prehearing conference. Thereafter, the arbitrators are compensated by a daily fee which can amount to thousands of dollars over a lengthy hearing. The arbitrators' expenses (hotel, food, transportation, etc.) are all billed to the parties.
 

These fees and expenses may be allocated by the arbitrators to the losing party, or it can be split between the parties, as the arbitrators see fit.
 

There is no discovery in arbitration, except for that ordered by the arbitrators or agreed to by the parties. Usually, only exhibits which will be introduced in evidence at the arbitration are exchanged by the parties.
 

The parties save the cost of conducting discovery. This reduces preparation costs, but it may lengthen the time of the arbitration hearing.
 

The lack of discovery also means that neither side has much possibility of learning about the other side's case prior to the hearing. This means that a party has less chance of learning the relative strengths and weaknesses of each side's case. This may reduce settlement opportunities and increase the chance of unpleasant surprises at the hearing.
 

Arbitration is a contractual dispute resolution process. This means that only those parties who contractually agree to arbitrate can be joined in the arbitration. Architects and engineers usually have provisions in their contracts barring them from being joined in any arbitration between the owner and the contractor. This usually requires them to be sued in a separate action.
 

In arbitration, the hearing can and often is broken up into segments. This can be more convenient than a court case, where the judge directs the attorneys to appear at trial and to conduct the trial through to a conclusion, usually with no adjournment. The downside of this is that evidence presented at the first arbitration hearing may be forgotten by the time the last hearing is held.
 

Scheduling a hearing can be a problem in arbitration. Usually, the panel is made up of professionals who have busy schedules. It often is difficult to find a block of time that is convenient for everyone. This can result in a considerable delay in holding the first hearing, and may require a month or more between hearings if the hearing is broken up into segments.
 

There is virtually no possibility of reversing an arbitration award on appeal. In the absence of fraud or misconduct, the decision of the arbitrators is final. This is fine if you win, but what happens if you lose?
 
 
 
 
 

2. Georgia Arbitration Code

(O.C.G.A. § 9-9-1)
 
 
 

Georgia has adopted an arbitration statute called the Georgia Arbitration Code. O.C.G.A. § 9-9-1.
 

The Georgia Arbitration Code applies to all disputes in which the parties have agreed in writing to arbitrate and "shall provide the exclusive means by which agreements to arbitrate disputes can be enforced" in Georgia, with certain stated exceptions. O.C.G.A. § 9-9-2.
 

An arbitration agreement submitting the controversy to arbitration or a contract which provides for arbitration of disputes arising under the contract is enforceable pursuant to the Georgia Arbitration Code. O.C.G.A. § 9-9-3.
 

Under the Georgia Arbitration Code, demand for arbitration must be served on the other parties to the arbitration by registered or certified mail, return receipt requested. This statute provides for preliminary injunctions, attachment, and other special relief upon application to a court having jurisdiction of the controversy. O.C.G.A. § 9-9-4.
 

If a party seeks to arbitrate a claim which would be barred by a statute of limitation had the claim been asserted in court, a party is authorized under the Georgia Arbitration Code to apply for a stay of the arbitration or vacate any award rendered by the arbitrators. A party waives the right to raise the limitation of time as a bar to arbitration in an application to stay arbitration by that party's participation in the arbitration. O.C.G.A. § 9-9-5.
 

An application to compel arbitration may be filed with a court having jurisdiction. A party also may apply to stay arbitration if no valid agreement to submit to arbitration was made, if the arbitration agreement was not complied with, or if the arbitration is barred by a limitation of time. O.C.G.A. § 9-9-6.
 

Where a party serves a demand for arbitration, the demand must specify the agreement pursuant to which the arbitration is sought, the name and address of the party serving the demand, that the party served with the demand shall be precluded from denying the validity of the agreement or compliance therewith or from asserting the limitation of time as a bar in court unless he makes application to the court within 30 days for an order to stay arbitration, and the nature of the dispute or controversy sought to be arbitrated. Amendments are permitted after the original demand is served. O.C.G.A. § 9-9-6.
 

After service of the demand for arbitration or any amendment thereto, the parties served must make application within 30 days to the court for a stay of arbitration or be precluded from denying the validity of the agreement to arbitrate. The right to apply for a stay of arbitration may not be waived except as set out in the Georgia Arbitration Code. O.C.G.A. § 9-9-6.
 

Parties may seek consolidation of separate arbitration proceedings under certain circumstances. O.C.G.A. § 9-9-6(e).
 

The Georgia Arbitration Code provides that if an arbitration agreement sets out a method for appointment of arbitrators, that method shall be followed. If there is no method set out in the agreement or if for some reason the method fails or is not followed then the court may appoint one or more arbitrators on application of a party. O.C.G.A. § 9-9-7.
 

Arbitrators shall appoint the time and place for a hearing and may overrule the designation of the place of hearing stated in the arbitration agreement. Ten days' notice is required before the hearing is held. The arbitrators may adjourn or postpone the hearing. A court may direct the arbitrators to proceed promptly with the hearing in a determination of the controversy. O.C.G.A. § 9-9-8(a).
 

At the arbitration, the parties are entitled to be heard and to present pleadings, documents, testimony and other matters including cross-examination of witnesses. Parties have the right to be represented by an attorney. The hearing must be conducted before all the arbitrators unless the parties agree otherwise. A majority of the arbitrators may determine any question and render or change any award. The arbitrators are required to maintain a record of all pleadings, documents, testimony and other matters introduced at the hearing, including ordering the proceedings to be transcribed by a court reporter. O.C.G.A. § 9-9-8.
 

The arbitrators may issue subpoenas for the attendance of witnesses and for the production of books, records, documents, and other evidence. The subpoenas may be served by the court and enforced in the same manner as service and enforcement of subpoenas in a civil action. Discovery may be ordered by the arbitrators according to procedures established by them. A party has the right to the obtain a list of witnesses in examining copied documents relevant to the arbitration. Witnesses are entitled to compensation in the same manner as witnesses in superior court. O.C.G.A. § 9-9-9.
 

The arbitrators must render their award in writing and sign it. The award must be delivered to each party personally or by registered or certified mail, return receipt requested. The award must be made within the time fixed by the agreement or within 30 days following the close of the hearing if no provision is made in the agreement. A court may shorten or lengthen this time. The parties may extend in writing the time before or after its expiration. A party waives any objection to the award that is not made within the time required unless he notifies the arbitrators in writing of his objection prior to the delivery of the award to him. O.C.G.A. § 9-9-10.

Arbitrators are authorized to change the award if there is a miscalculation or mistake, if they have awarded upon a manner not submitted to them, or if the award is imperfect in a matter of form not affecting the merits of the controversy. Application for a change in the award must be made within 20 days after its delivery and must be served upon the other parties. Objection to the change of the award by the arbitrators must be made within 10 days after service of the application for a change, and written notice of this objection must be served on the other parties. The arbitrators then have 30 days to rule on the objection. O.C.G.A. § 9-9-11.
 

The court must confirm the award within one year after its delivery. O.C.G.A. § 9-9-12.
 

The court is authorized to vacate an award within three months after delivery of the award for corruption, fraud, misconduct, partiality of an arbitrator appointed as a neutral, overstepping of the authority of the arbitrators, or failure to follow a procedure set out in the Georgia Arbitration Code. Other grounds for vacating the award also exist. O.C.G.A. § 9-9-13. The award also may be modified by the court. O.C.G.A. § 9-9-14. Judgment may be obtained on the award, O.C.G.A. § 9-9-15, and appeals are authorized, O.C.G.A. § 9-9-16.
 

Unless otherwise provided in the agreement to arbitrate, the arbitrator's fees and expenses, not including counsel fees, incurred in the conduct of the arbitration, shall be paid as provided in the award. O.C.G.A. § 9-9-17.
 
 
 

3. Federal Arbitration Act

(9 U.S.C. § 1)
 
 
 

There is also a procedure to enforce an arbitration agreement under the Federal Arbitration Act. If a suit is brought on an issue referable to arbitration under an arbitration agreement, a stay may be entered in any court of the United States upon application of one of the parties. 9 U.S.C. § 3.
 

A party may compel arbitration under the Federal Arbitration Act by petitioning the United States court having jurisdiction for an order to compel arbitration. 9 U.S.C. § 4.
 

If the agreement makes provision for a method of naming or appointing an arbitrator or arbitrators, such method shall be followed, but if no method is provided or if one of the parties fails to use such method, or for any reason there should be a lapse in the naming of an arbitrator, then upon application the court shall designate and appoint an arbitrator or arbitrators who shall act under the agreement. 9 U.S.C. § 5.
 

Under the Federal Arbitration Act, the arbitrators may summon in writing any person to attend a hearing as witnesses and compel them to bring any book, record, document, or paper which is deemed material as evidence in the case. Fees for attendance shall be the same as fees for witnesses before masters of the United States courts. A summons shall issue in the name of the arbitrator or arbitrators and shall be directed to the person to be served in the same manner as subpoenas to appear and testify are used in court. A United States district court may be petitioned if to compel attendance of such person or to punish such person for contempt of the summons. 9 U.S.C. § 7.
 

If the parties have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration and so specify in court, at any time within one year after the award a party may apply to confirm the award and the court must grant a confirmation order unless the award is vacated, modified, or corrected as prescribed by the Federal Arbitration Act. 9 U.S.C. § 9.
 

An arbitration award may be vacated where an award was procured by corruption, fraud, or undue means, where there was evident partiality or corruption in the arbitrators, where the arbitrators were guilty of misconduct in handling the hearing, where the arbitrators exceeded their powers or imperfectly executed them. A court is authorized to direct the arbitrators to rehear a matter, in its discretion. 9 U.S.C. § 10.
 

Where as miscalculation occurs or a mistake is made in description of any person, thing, or property referred to in an award, or where the arbitrators have awarded upon a manner not submitted to them, or where the award is imperfect in matter of form not effecting the merits of the controversy, a court is authorized to modify the award to correct the mistake. 9 U.S.C. § 11.
 
 
 

4. Compelling Surety to Arbitrate
 
 
 

Sureties have historically resisted being compelled to arbitrate disputes between their principal and a claimant. The bonds issued by a surety usually do not contain an express arbitration provision, but ordinarily do incorporate by reference the construction contract which their principal has signed. If that contract contains an arbitration provision, the modern trend finds that the surety bond has incorporated the subcontract by reference and that the arbitration provision in the contract also is incorporated by reference into the bonded obligation.
 

Accordingly, if such an incorporation clause exists, the surety is required to arbitrate. J.S. & H. Construction Company v. Richmond County Hospital, 473 F.2d 212 (5th Cir. 1973); United Fidelity & Guaranty Company v. West Point Construction Company, Inc., 837 F.2d 1507 (11th Cir. 1988); Transamerica Premier Insurance Company v. Collins & Company, General Contractors, Inc., 735 F.Supp. 1050 (N.D. Ga. 1990).
 

Language in the bond stating that "any suit" must be brought within two years is not inconsistent with an agreement to arbitrate. Transamerica Premier Insurance Company v. Collins & Company, General Contractors, Inc., 735 F.Supp. 1050 (N.D. Ga. 1990).
 
 
 

5. Waiver of Arbitration
 
 
 

It is possible for a party to take actions which will be inconsistent with proceeding under arbitration to resolve a dispute. If a party files a complaint, pursues discovery, files motions in court, and in general takes actions which completely disregard the arbitration provision, a court may be authorized to find that the party waived its right to demand arbitration. Where a party attempts to preserve these rights, however, arbitration will not be waived. H.R.H. Prince LTC. Faisal M. Saud v. Batson-Cook Company, 161 Ga. App. 219, 291 S.E.2d 249 (1982).
 

6. Confirming or Overturning Arbitration Awards
 
 
 

As indicated earlier, an arbitration award must be confirmed within one year after it is returned by the arbitrators. A failure to confirm the award may result in waiving the award.

53. Mediation
 

Mediation is often a superior solution for the resolution of construction disputes. Mediation may be conducted under the auspices of the American Arbitration Association, which has formal rules and procedures for mediation. Other companies offer this service and employ experienced construction professionals, former judges, and others skilled in the mediation process.
 

Mediation is an effort to bring the parties together to a mutually agreeable settlement. Mediation is nonbinding and the parties, not the mediator, ultimately determine whether the case will settle.
 

Mediations should be conducted under a confidentiality agreement in order to avoid prejudice to an arbitration or litigation of the claim subsequently.
 

The process works best if both parties have decision makers present and participating in the mediation. It is usually helpful to have legal counsel present to help organize the argument and effectively present each party's position.
 

The process usually starts by an introductory statement of the position of the parties. Then private sessions with the mediator are held in an effort to determine whether common ground can be reached. A strong mediator is often helpful. Errors in logic, faulty assumptions, and weak arguments can be pointed out by the mediator.
 

Mediation is often successful in settling a case because it offers the decision makers for each side the first opportunity to hear their opponent's case unfiltered through the eyes and ears of their own personnel. Assessments of the strength and weakness of each side's case can be made. Mediation should occur only after thorough preparation of the case. Under these circumstances, mediation is surprisingly effective in achieving a resolution of construction claims.

54. Litigation
 

At the time suit is filed, a party must determine whether to demand a jury trial or have its construction case tried before a judge. There are advantages and disadvantages to both procedures.
 

With the judge trial, scheduling flexibility can be increased. More interaction with the judge is possible than would be the case with a jury. Accordingly, if the judge has questions, he can stop the proceedings, question the expert, or request clarification from the attorney. This usually is not possible with a jury trial.
 

Judges may have more familiarity with technical concepts and are, of course, usually much more educated than the members of the jury.
 

Certain advantages also exist with the jury trial. A jury trial usually occurs continuously until it is completed. The jury then retires and deliberates until it reaches a verdict.
 

It is usually much more difficult to appeal from a judicial decision than it is from the decision of a jury trial. Accordingly, an adverse decision rendered by a judge may be difficult to reverse, while there may be more possibility of reversing an adverse jury trial verdict.
 

The rules of evidence are strictly adhered to during a jury trial. This offers the opportunity to exclude evidence which might be reviewed by a judge "for what it's worth."
 

Juries are often viewed as being unsophisticated. Juries do, however, have an excellent collective ability to determine who is lying and who is telling the truth.
 

While court costs are charged in litigation, these costs usually are much lower than fees for arbitration. Whoever prevails in the litigation is awarded court costs virtually automatically.
 

There is no problem in litigation with compelling the attendance of the parties and attorneys, since the judge can direct the attendance of the attorneys at the trial and subpoenas are readily available to compel the attendance of witnesses.
 

A trial occurs after a full discovery, including interrogatories, depositions, requests for production of documents, and requests for admissions.
 

Discovery provides the opportunity to learn a great deal about the opponent's case and for your opponent to learn a great deal about your case. This is intended to facilitate settlement.
 

Litigation also can compel parties to participate in the dispute resolution process. A summons and complaint can be issued against any one subject to the jurisdiction and venue of the court. Third parties can be added under many circumstances.

With litigation, an appeal to a higher court is possible and may result in a reversal of the trial court decision. If a case is appealed, a delay of as much as a year or more may occur before the judgment is final.
 
 
 

55. Bankruptcy
 

Bankruptcy is a fact of life for construction contractors and owners today. In order to make correct decisions, some understanding of the provisions of the bankruptcy code is necessary.
 

A company can declare bankruptcy through Chapter 11 "reorganizations" or Chapter 7 "liquidations."
 

A Chapter 11 reorganization is intended to permit the restructuring of the company's debt with the idea that the company eventually will emerge from bankruptcy.
 

Unfortunately, most Chapter 11 proceedings end up being converted into Chapter 7 liquidations, where the company's assets are portioned out to its creditors and the company dissolves.
 

While most construction contracts have provisions stating that the following of bankruptcy is an event of default, these provisions usually are not enforceable because they constitute impermissible "ipso facto" bankruptcy clauses. In other words, the mere fact that a company declares bankruptcy does not automatically mean that that company has defaulted under a construction contract, even if the contract states to the contrary.
 

Accordingly, a company declaring bankruptcy may not be automatically thrown off of a job or terminated. This can only occur if other events of default such as stopping work, failing to pay suppliers, or failing to maintain adequate progress in the work authorized the termination.
 

When a company declares bankruptcy, an "automatic stay" is entered which if violated subjects the offender to severe penalties. Throwing the company off the job, terminating the contract, seizing the company's tools and equipment, or continuing to attempt to collect debts from the company all constitute violations of the automatic stay.
 

The party may seek relief from the automatic stay by applying to the bankruptcy court. At the same time, a party may apply to the bankruptcy court requesting that the debtor assume remaining portions of the contract and to provide "adequate assurance" of future performance. Such contract assumed by the debtor becomes a "post-petition obligation" of the debtor and may be treated like any other contract.
 

In a liquidation under Chapter 7, the main objective of the bankruptcy is the distribution of the debtor's remaining assets to the creditors of the debtor. In this situation, it is necessary for a claimant to file a "proof of claim" in the bankruptcy court and to protect any "security interest" that the party may have in the assets of the debtor's estate.
 

If a general contractor declares bankruptcy, it is still possible to pursue the general contractor's bonding company. It is also possible to follow lien, even if the party declaring bankruptcy is the owner. Perfection of rights already available to a party prior to the bankruptcy does not constitute a violation of the automatic stay, hence, a lien filing is permissible.

In a supplier's bankruptcy, a key question will be whether the contract at issue is an "executory contract." Executory contracts are not defined in the bankruptcy code but are generally considered to be contracts which have yet to be performed by the debtor. The debtor may wait until its final plan of reorganization is confirmed before the contract is accepted or rejected. In this event, it is helpful to file a motion with the bankruptcy court requiring the debtor to either assume or reject the supply contract. In a Chapter 7 liquidation, executory contracts will be assumed or rejected by the bankruptcy trustee within 60 days. If no action occurs, the contract is deemed rejected and a proof of claim may be filed with the bankruptcy court for damages.
 

Even if you do nothing further in a case, it is almost always appropriate to file a proof of claim. Unless the proof of claim is disputed by the debtor, your claim will ordinarily be accepted by the bankruptcy court. Secured creditors also have an opportunity to exercise their rights against secured property and to recover that property through the bankruptcy court.