As a general contractor, Conway Construction Corporation (CCC) entered into a written contract with Setcher Roofing Company (SRC) for all roofing, decking, and sheetmetal on the Bentonville High School project for a contract amount of $261,000.

This contract was one of several contracts the CCC had with SRC, and was one of many contracts over a period of years prior to this contract. During the course of the project there were three (3) Change Orders for additional work. CO #1 was for $1,060; CO #2 was for $2,380; and CO #3 was for $21,540. All change orders were approved by the architect, and paid by the owners.

During the course of the project, CCC received and paid several monthly pay requests from SRC, which included the base contract and CO #1 and #2. For some reason, unknown to CCC, SRC failed to acknowledge the $21,540 CO #3, or invoice CCC for the work. The work covered in CO #3 was completed on schedule per the plans and specifications.

Five months later, during an internal audit by CCC, it was discovered and brought to the PM’s attention the SRC had signed all lien releases and provided CCC with a Paid in Full Receipt four months before.

The ethical question asked by CCC was: Do we keep quiet and hope that SRC never finds out that they were not paid for the $21,540 CO #3, or do we pay SRC per the contract provision?

Is Setcher Roofing Company legally entitled to the money?

If Setcher Roofing Company was not an old associate company, but a firm with a terrible reputation for cheating others and you never expected to work with them again, would your decision be different? Why or why not?