A Georgia Construction Mediator’s Account of how a Supplier’s Unpaid Invoices Opened the Door to a Comprehensive Settlement

By Barry Selvidge | Georgia Center for Arbitration & Mediation

Experienced Georgia construction mediation can help resolve contractor disputes, payment bond claims, and costly construction litigation.

After years of practicing construction law, I have learned that the issue driving a construction dispute is not always the issue that ultimately determines whether it can be settled. The parties may arrive prepared to debate delay damages, defective work, and unpaid contract balances, only to discover that the most important obstacle is a separate business problem.

A recent mediation involving a public construction project in Georgia illustrated that point. The general contractor asserted more than $1 million in back-charges and corrective costs against a mechanical subcontractor. The subcontractor disputed those claims and maintained that it was owed money. Meanwhile, an unpaid material supplier had asserted a payment bond claim of approximately $500,000. Ultimately, addressing that supplier claim made it possible to resolve all three parties’ disputes.

Certain nonessential details have been altered or omitted to protect the participants and respect the confidentiality of the mediation process.

A Project Nearing Completion — Except for One Subcontractor

The general contractor was nearing completion of a multimillion-dollar public facility. Weather and owner-related interruptions had affected the schedule, but most of the project had progressed successfully. The exception was a specialty mechanical subcontractor whose performance deteriorated after a project delay.

According to the general contractor, the subcontractor had begun with a capable project manager and experienced crew. During the interruption, however, it reassigned key personnel elsewhere. Once work resumed, the subcontractor allegedly lacked adequate supervision and manpower to fulfill its performance under the construction contact. Its work fell behind schedule, and the general contractor claimed that numerous installations required correction.

Facing a firm occupancy deadline, the general contractor issued notices demanding additional supervision and labor. When the response proved insufficient, it supplemented the subcontractor’s workforce and undertook repairs. By project completion, the general contractor claimed more than $1 million in supplemental labor charges and corrective costs.

The subcontractor acknowledged that additional labor had been needed but disputed the amount and propriety of the back-charges. It also maintained a claim for unpaid subcontract funds. A trial could have required extensive discovery, schedule evidence, and expert testimony concerning the reasonableness of the charges but the parties opted for early mediation.  In fact, their Construction Subcontract Agreement required mediation prior to making a demand for arbitration.

The Supplier’s $500,000 Claim Changed the Negotiation

A principal supplier had not been paid and had asserted a claim against the general contractor’s payment bond pursuant to Georgia’s Little Miller Act. The general contractor was concerned about its relationship with its surety and the potential effect of a significant unresolved claim on future bonding opportunities. A claim does not automatically reduce bonding capacity, but surety relationships are commercially important to contractors performing public work.

The subcontractor faced a different problem: it lacked sufficient funds to satisfy the supplier and risked losing access to materials needed for other projects. Even a subcontractor with ongoing work can struggle to survive if an essential supplier will no longer extend credit.

Thus, both sides had a common interest in resolving the supplier’s account, even though they disagreed sharply about the back-charges.

What Georgia’s County and Municipal Payment Bond Statutes Have to Do With It

On public works projects subject to Georgia’s local-government construction statutes, the relevant payment bond provisions are found in O.C.G.A. §§ 36-91-90 through 36-91-95. These provisions address payment bonds for covered county, municipal, and other local-government public works contracts, notice of commencement, protected claimants, and time limitations. The precise statutory framework depends on the public owner and project.

In particular, O.C.G.A. § 36-91-90 addresses the requirement for payment bonds, while O.C.G.A. § 36-91-93 concerns the rights of persons protected by the bond or substitute security. Statutory notices and deadlines also require attention. These provisions are often discussed as part of Georgia’s Little Miller Act framework.

The important point in our mediation was that an unpaid subcontractor account and a valid claim against a particular payment bond are not necessarily identical. The supplier’s balance apparently included invoices potentially associated with other jobs. That distinction had to be investigated before anyone could intelligently evaluate the bond exposure.

A Mediation Focused on Business Realities

The parties met in person in Atlanta and waived formal opening statements. I began with separate caucuses, using the morning to understand the project history, the contract notices, the alleged defects, and the competing payment claims.

After lunch, I shifted the discussions toward the supplier’s unpaid account. The general contractor wanted the bond claim resolved without a surety-funded payment. The subcontractor needed to preserve its supplier relationship. Those objectives were not mutually exclusive.

I suggested contacting the supplier and the surety’s attorney. The supplier held independent rights that the general contractor and subcontractor could not simply release on its behalf. The surety also had a direct interest in the treatment of the bond claim. A comprehensive resolution required participation by the right people.

By late afternoon, the participants had developed a workable settlement concept: the general contractor and subcontractor would contribute to a negotiated supplier payment; the supplier would resolve its account and release the bond claim; and the general contractor and subcontractor would settle their competing claims. The remaining obstacle was reconciling the supplier’s invoices, including amounts potentially attributable to other projects.

The Agreement Was Completed After the Mediation Session

Rather than force a settlement based on incomplete accounting, I recommended that the parties continue working through the figures. Beginning the following day, counsel and the parties determined the amount the supplier would accept and negotiated the allocation of payment.

The resulting tripartite agreement among the supplier, general contractor, and subcontractor provided for direct payment of part of the supplier’s debt by the general contractor and another portion by the subcontractor. The supplier agreed to resolve its account and release the payment bond claim on the negotiated terms.

Critically, the agreement also included mutual releases between the contracting parties: the general contractor released its back-charge and corrective-work claims, and the subcontractor released its claims for unpaid subcontract funds and its related disputes over the back-charges. Thus, the resolution was not merely a supplier payoff. It settled the broader construction dispute.

The general contractor addressed the bond exposure without requiring its surety to fund the settlement. The subcontractor gained a path to restoring its supplier relationship. The supplier obtained a negotiated recovery. All parties avoided the cost and uncertainty of litigating intertwined claims.

What This Mediation Teaches Construction Professionals

The largest demand is not always the controlling issue. The million-dollar back-charge claim attracted attention, but the smaller supplier claim generated the strongest immediate commercial pressure.

Specialized legal knowledge can reveal settlement options. Understanding Georgia payment bond rights, project-specific materials, and the practical role of a surety helped focus negotiations on the issue most likely to unlock agreement.

The settlement table may need additional participants. The supplier’s independent rights could not be extinguished merely by agreement between the general contractor and subcontractor.

Mediation can solve problems beyond a court judgment. A judgment could allocate liability, but it would not necessarily preserve a supplier relationship or address concerns about future bonding.

A successful mediation can continue after the scheduled session. The in-person meeting created the structure; careful accounting and follow-up produced the signed agreement.

An Experienced Construction Mediator Can Make a Difference

Construction disputes often involve overlapping issues of scheduling, defective work, cash flow, subcontractor defaults, materialmen’s liens, and payment bond claims. The legal merits matter. So do the business consequences of an unresolved dispute.

At the Georgia Center for Arbitration & Mediation (GCAAM), our construction mediation and arbitration services are designed for precisely these kinds of disputes. Parties may participate in person or through our virtual mediation services when travel or scheduling makes an online session more practical.

Sometimes the best way to resolve a million-dollar construction dispute is to stop concentrating exclusively on the million-dollar demand and identify the business problem that both sides need to solve.

About the Author

Barry Selvidge is a Georgia construction attorney and mediator affiliated with the Georgia Center for Arbitration & Mediation. His approach draws on experience with construction litigation, payment bond disputes, subcontractor claims, and practical settlement negotiations.  His extensive background includes working in private legal practices, at in-house corporate counsel, and as an entrepreneur; thus, Barry brings real-life business knowledge and experience as well as his understanding of construction law.

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