May 16, 2008

Catch 22: Withholding Payment Certifications

by Jim Atkins, FAIA, and Grant A. Simpson, FAIA

Summary: Okay, let me see if I got this straight. In order to be grounded I've got to be crazy, and I must be crazy to keep flying missions. But, if I ask to be grounded that means I'm not crazy anymore, and I have to keep flying.
—Captain Yossarian,
Catch 22, the movie.

Your project is now over six months past scheduled completion. You have scrutinized the “Balance to Finish” amount on each G702 Application for Payment since the originally scheduled completion, carefully deciding in reasonable professional judgment if it is enough to complete the project. You have watched the balance diminish month after month, and today, after careful consideration, you have decided that the balance may not be sufficient to pay for the work remaining.

As a precaution, you had your cost estimating consultant drop by the job after you e-mailed him a PDF of the payment application. You give him a call to find out what he thinks about the situation. He takes the position that the balance to complete will definitely not cover the work remaining for completion.

The requirements of AIA Document A201™–2007, General Conditions of the Contract for Construction, Section 9.5.1 are clear:

“… The Architect may also withhold a Certificate for Payment or … may nullify the whole or a part of a Certificate for Payment previously issued … to protect the Owner from loss … because of:

.4 reasonable evidence that the Work cannot be completed for the unpaid balance of the Contract Sum.
.6 reasonable evidence that the Work will not be completed within the Contract Time, and that the unpaid balance would not be adequate to cover actual or liquidated damages for the anticipated delay”

You ask yourself, what other means are available to protect the owner other than refusing to certify payment? The contractor has been non-responsive to your requests for his plan of action for recovery and has not increased the workforce or extended working hours.

When you mentioned to the contractor that you may be forced to withhold certification, he became angry and said he would pull off the job. On the other hand, you realize that approving payment will likely place the owner in a precarious position; one that could result in an incomplete project with virtually all funds disbursed. What are you to do? What is the solution? If you have been in this position, you know that the outcome is not going to be pretty.

This article is about the unfortunate dilemma that can arise when a project experiences a lengthy delay. It is a situation where you may not emerge unscathed—no matter which decision you make. It can be a self-defeating course of action, much like the fate of Alan Arkin’s character, Yossarian, in the 1970s movie, Catch 22. Your objective is to protect the owner, but either outcome usually does not provide a happy ending.

An extended delay on a project schedule can be difficult to manage and often results in damages and claims. If you are faced with the dilemma of insufficient funds to complete the project, you must make the decision to withhold certification or risk breaching the requirements of your contract with the owner.

A good option to managing your risk in such situations is to do your best to avoid them altogether. If you approach each project with sound contractor prequalification and selection, if the budget is adequate, if the project is reasonably bid, if the contractor’s work plan is sound and in use, and if the entire team works together with the mindset of efficiency and timely actions, there is an improved chance of success.

Although you may not control these outcomes on your projects, you should work with these goals in mind to hopefully avoid having to make that decision to certify or not to certify. Because, when the money runs out, and you are forced to decide, you may likely find yourself in Yossarian’s shoes, faced with a self-defeating course of action that can yield no positive result. You may find that either way you go, it is a Catch 22.

So as you review those bid tabs and fill out your bid scorecard to determine if the alternates, allowances, and contingencies are all accounted for, think about the importance of the construction procurement process and the importance of identifying and selecting a qualified and experienced contractor for the job, and of course, it goes without saying, be careful out there.

To read the full text of this article, including two case-study scenarios, click here.


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Read the full-text of this article.

Catch 22, the movie is based on Catch 22, the bestselling novel by Joseph Heller.

This series will continue in AIArchitect when Grant and Jim will explore the stimulating aspects of our practice.

If you would like to ask Jim and Grant a risk- or project-management question or request them to address a particular topic, contact

James B. Atkins, FAIA, is a principal and chief risk management officer with HKS Architects. He has served on the AIA Risk Management Committee and he chaired The Architect’s Handbook of Professional Practice 14th edition Revision Task Group.

Grant A. Simpson, FAIA, has served as a project delivery leader for several international firms, where his responsibilities included construction documentation, project management, and loss prevention activities. He serves on the AIA Risk Management Committee and has served on the AIA Practice Management Advisory Group.

This article is intended for general information purposes only and does not constitute legal advice. The reader should consult with legal counsel to determine how laws, suggestions, and illustrations apply to specific situations.

You’ve learned from their articles, now read the whole book
John Wiley & Son has just published a compendium of the Simpson/Atkins series of risk management articles published from 2005 to 2007 in AIArchitect and Texas Architect. The book debuted in the AIA Bookstore at the 2007 AIA Convention and Exposition in Boston May 15-17. Call the Bookstore after May 20 for more information, 800-365-2724, option 4.