Court of Appeal Holds that Claims of a Public Entity are "Secondary" to a Contractor's Right to Prompt PaymentThe Louisiana Fourth Circuit Court of Appeal recently rendered a decision supporting the right of general contractors to compel payments owed on public construction projects while reducing the ability of public entities to withhold such payments by way of offsets claimed against contractors. The case applied La. R.S. 38:2191 which mandates that “[a]ll public entities shall promptly pay all obligations arising under public contracts when the obligations become due and payable under the contract.” The statute also provides that “[t]he provisions of this Section shall not be subject to waiver by contract” and permits a mandamus action when a public entity fails to make payment due to a contractor. The benefit of a mandamus action is that such an action is to be heard by way of a summary proceeding, meaning that the contractor can obtain a judgment for the unpaid contract amounts without the delays associated with an ordinary lawsuit.
In Woodrow Wilson Constr. LLC v. Orleans Par. Sch. Bd., 2017-0936, 2018 WL 1835817 (La. App. 4 Cir. 4/18/18), the general contractor was awarded a contract for a public construction project by the Orleans Parish School Board. The project was to reach substantial completion within 548 days, and the contract between the parties imposed liquidated damages in the amount of $5,000 per day if substantial completion was not timely achieved. The project was ultimately completed 517 days after the substantial completion date. As a result, the School Board withheld the entirety of the retainage, claiming that the liquidated damages for which the contractor was responsible exceeded the retainage due under the contract. The contractor, however, contested liability for the delays associated with the project and filed two separate lawsuits against the School Board. In the first lawsuit, the contractor sought payment of the retainage by way of a summary mandamus action. In the second lawsuit, the contractor sought damages for extended overhead expenses and general conditions arising from the delays by way of an ordinary lawsuit.
In the mandamus action, the contractor argued that retainage was due because substantial completion was achieved, the lien period had expired, and the contractor furnished the School Board with a clear lien certificate. The School Board, however, relied upon a provision in the contract which permitted the School Board to collect liquidated damages in any manner available, including the withholding of final payment. The trial court denied the contractor’s mandamus action, concluding that La. R.S. 38:2191 was not applicable because there was a question as to whether final payment was due under the terms of the contract. On appeal, the ruling of the trial court was reversed. Specifically, the Court of Appeal stated that the provision relied upon by the School Board could not serve to waive the contractor’s right to final payment, citing to the section of La. R.S. 38:2191 which prohibits contractual waivers. The Court of Appeal explained that allowing the owner to assert a claim for damages against the contractor as a means to circumvent a mandamus action would render La. R.S. 38:2191 meaningless and explicitly held that “a public entity's separate claims against a contractor are secondary to the contractor's right to prompt payment under La. R.S. 38:2191.” In addition, the appellate court held that the contractor was entitled to recover attorneys’ fees for bringing the mandamus action to obtain payment of the unpaid retainage.
This decision is huge! It significantly benefits general contractors performing public works projects. The decision requires a public entity to make final payment to a contractor despite the existence of claims against the contractor. If the public entity fails to do so, the contractor can compel payment by way of a summary mandamus action. Thereafter, the public entity can still pursue it claims against the contractor, but it must do so by way of an ordinary lawsuit. This is because, according to the recent pronouncement by the Court of Appeal, the public entity’s claims are “secondary” to the contractor’s right to prompt payment.