ethics question re: bankrupt GC

LanterDan

My church is in the process of building in new building. Construction has stopped on the GC has gone belly up. Various subs are owed somewhere north of $500k for work already performed and have placed liens on the property. The performance bond for the project was procured through a private individual who is also bankrupt and being sued by numerous other parties in multiple states. Would it be ethical to try to settle with the subs for an amount less than they are owed (which is what I believe is currently being done)? I am of two minds on this: part of me says it never hurts to ask, but part of me thinks this would be insulting since they are legitimately owed money. From a practical standpoint, they’ve already placed liens on the property and they know we are committed to finishing the project, so I see no reason that they would have any incentive to deal.

DUDE!

I guess it doesn't get any tougher then that. I have no clear answer for you. On the one hand if this was a business, I'd chalk the nogoiation (?) up to normal business procedure. Being that its a church, well, now you have your conscience to deal with. Just me but I'd have a hard time sitting in church knowing we as a congregation screwed the subs out of there money because that is how business is done. It makes somewhat of a difference that the project is to continue, that means there is a source for more funding. This is a very tough question for a DIY forum, I may be thankful for an edit button later upon reflection. Good day to you.

mikey48

My first question, has the contractor been paid?

joasis

You summed it up when you said they are legitimately owed the money for the work they have done. You can ask them for a reduction if they possibly can to "ease" what has happened to you, but they should not be held to any obligation to do so. It is certainly not their fault for your general contractor going broke, and it is your fault for seeking an individual to hold a performance bond also, so do the right thing and encourage your church to pay the subs.

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Big Bob

Lien laws differ from State to State.
In Florida, contractor lost profit and overhead on the entire project could be included in the lien amount.

Your congregation has a responsibility to be good stewards with the funds that have been entrusted to them.

It is also Biblical; to be sure the temple builders are paid. I will find the chapter and verse for you.

I hope your board of trustees is getting some good outside legal help and have been following AIA procedures for any payments made.

Yes, it is the duty of the church to investigate, and determine what the subs are properly owed. When you received your "notice to owner" from the subs: it advised in bold print that it was your duty to be sure they are paid.

One tool may be negociation.

Termite

It couldn't be said any better than Big Bob and Joasis said it.

nap

in contrast, it isn;t fair the church pay more than what they agreed to either. If the GC has taken the money and ran, the subs gripes are really with the GC, not the church.

If the GC has not been paid, then the church merely pays the subs instead of the GC.

The subs also must realize they can lein the property all they want but getting the money the lein is for is another subject altogether. A lein on a building that will never be sold can be a waste of energy. If state laws do not allow forclosure of the property, the lein will simply remain forever.
Even if the subs could force the sale of the building to satisfy the leins, that doesn;t mean there will be enough money to go around.

and who could honestly foreclose on a church.

Snidely Whiplash; that's who. Any others willing to do so?

Big Bob

Nap,

I don't think your post is as much a contrast to posts above, but might be more illuminating to the OP.
The reality of lien litigation provides fertile ground for negotiation.

Following proper AIA procedures may have helped insure the subs were paid.

This mess is more than we can help clean-up "with limited info and (back and forth postings)."

The OP's question is ethical in nature:

What kind of ethical foundation will this church building be built on?

nap

Yes, there is an equity involved. I merely attempted to post it from the perspective if the church. Is it equitable if the church has to pay twice for the same work? Of course not.

the church had done nothing wrong yet they will probably be the ones punished the most in this situation.

This sounds like a sad situation any way it goes.

Tscarborough

Sadly, it is my experience that with churches and lawyers, you get your money up front.

As to your ethical duty, it is a contractual question, not an ethical one

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kbsparky

It was the church who chose that particular GC, as well as approving the private bonding agent. Why? Did they offer a "too-good-to-be-true" deal? Someone related to someone? Friend of a friend? Or some other underlying reason?

It becomes their responsibility to handle the fallout from those decisions in the end, even if it means to fork out more money than originally planned.

nap

Well, all of that isn;t clear, to me anyway. They may have been misled. They may simply be ignorant of the construction business. Who knows?

joasis

If the church had obtained a performance bond from a legitimate insurer, then none of this would be happening. I have never heard of an individual writing such a bond...in Oklahoma, I don't think it would be legal.

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LanterDan

Thanks to all who have responded. Yes the GC has been paid (well, he stopped getting paid, once he stopped working, but he has been paid on schedule). I have the understanding that the church required the GC to procure a performance bond, but didn’t really seem to care who he got it from. Apparently he originally tried to convince the church that we didn’t need a performance bond, but we insisted on it. I think this would have set off major warning signals to me, but I’m told by other at church many other churches don’t bother with performance bonds. The thought of having a multimillion dollar commercial project unbonded seems rather stupid to me though. (Joasis: they are calling this type of bond a “private surety.” I had never heard of it either, but this isn’t really my business. There are some questions as weather the individual who issued it possessed the proper licenses etc, to deal in this state, but apparently is legal is some states).

As to kpsparky’s question of why we went with this GC, all I can say is that I don’t know all the details. I do know that they spent some time looking at other churches he had built and where impressed with his workmanship. (I also know they dismissed another bidder for this reason.) I do not know where his price came in with respect to other bids. I suspect he may have been a little too low, but I don’t know that with certainty. I do know that there were some concerns with his financial situation beforehand, but somehow he reassured them of that. I am certain he isn’t related anyone in the church, or a friend, or anything sinister along those lines.

I do basically agree those here who have said that we got what we deserved here. It turns out that saying that makes me rather unpopular. But what’s done is done. A good chunk of the church (including some on the building committee) seems to be surprised to learn that a sub could place liens on the property “when we didn’t hire them, the GC did.” We have to deal the liens on the property since our line of credit has been frozen and needed to resume construction. The problem with negotiating with the subs is that I only see three ways:
1. Please lower your price, or we will delay paying what we owe you (or force you foreclose on the property). – Obvious ethical problems.
2. Please lower your price. We would like to pay you in full, but we are financially unable to do so. We know you can sue/foreclose on us, but that’s is in neither of our best interests, so lets see if we can agree on something. – I’d have no problems with this if we where more financially desperate. But I think we can afford to pay them, even though it would involve some painful budget trimming in other areas.
3. Please lower your price. Pretty please. With sugar on top. – Why bother.

LanterDan

Bob, what are AIA procedures? I do not recognize this acronym.

I’m really curious to know, but will probably never find out, is wether the GC procured the performance bond in the manner that he did in order to save a few bucks, or if he was in fact unable to obtain one from a reputable insurance company.