Reference no: EM132270869

CASE

Hollings General Contractors is a general contracting company located in a medium-sized city in the Midwest. It is a family-owned business that has been in operation for 32 years. Its main focus is commercial construction in the range of $1 million to $5 million; its specialty is office buildings and smaller shopping centers. Paul Hollings, the president of the company, took over operations when his father Bill Hollings retired three years ago.

In the past, the company used the standard AIA forms for its contracts with both owners and architects, and with the subcontractors employed on its jobs.

Paul, however, felt the AIA contracts did not go far enough in protecting his company and enlisted a lawyer specializing in construction law to create a contract especially for Hollings General Contractors. The new forms were completed a year ago and have been used by Hollings ever since. One of the new paragraphs in the contract states that the general contractor will pay the subcontractors “if paid by the Owner,” not the standard wording of “when paid by the Owner.”

In February of 2015, Hollings entered into a contract with WCB Corporation to build a $3.3 million new office building for WCB. The construction began in May of that year. Work had progressed well and on time until October of that same year, when WCB stated it was not going to accept the work that the subflooring contractor had done; they argued that it did not meet the contract specifications. WCB also stated that it was not going to pay the October monthly draw to Hollings until the work was redone. The subfloor contractor insisted that the subfloor was done correctly and in compliance with the specifications and did not need to be redone.

Meanwhile, since Hollings had not received its money from the owner, WCB, it had not paid any of the subcontractors, pointing out that the wording of their contract with Hollings specifically states that they will be paid “if paid by the Owner.”

Many of the subcontractors threatened to quit and leave the job if they did not receive their payment immediately. If this happened, the project would be put into complete disarray, possibly ending in lawsuits and demurrage charges due to delay of the project.

Question

Declare the course of action you would take if you were Paul Hollings. Explain your response, discussing the potential legal and business risks and implications of your actions?