Late Payment on Private Projects--When can a contractor recover late payment interest under Miss. Code Ann. §87-7-3?
If you are a contractor and submitted an application for a progress payment on a private construction project the owner should make timely payment under the terms of the contract. However, all too frequently the owner does not make that timely payment. If this occurs, contractors should look to Miss. Code Ann. §87-7-3 for relief. It provides, with regard to progress payments as follows:
…If they [partial, progress or interim payments] are not paid within thirty (30) calendar days from the day they were due and payable, then they shall bear interest from the due date at the rate of one percent (1%) per month until fully paid.
Miss. Code Ann. §87-7-3(a).
This statute also provides the same relief where final payment is requested by the contractor and payment is not made within thirty (30) calendar days from the first occurrence of either (1) substantial completion under the terms of the contract, (2) beneficial use and occupancy by the owner, or when the project is certified as complete by the architect or engineer. Miss. Code Ann. §87-7-3(b).
Unfortunately, this interest is not automatic unless the amount requested is liquidated. This was made clear by the Mississippi Supreme Court in a recent decision. There was a dispute between the owner and the contractor concerning the amount due and owing under the contract. The contractor demanded pre-judgment interest under Miss. Code Ann. §75-17-1 Ann. and late payment interest under Miss. Code Ann. §87-7-3. In denying both of these requests the Court concluded:
Neither Section 75-17-1 nor Section 87-7-3 mentions whether monies owed contractors must be liquidated in order for the respective statute’s grant of prejudgment interest to apply. However, the same considerations which preclude a recovery of prejudgment interest for unliquidated amounts owed under Section 75-17-1 apply to Section 87-7-3. Therefore, Stubbs [the contractor] must show that his claims against the Falkners [the owner] were liquidated prior to the judgment in order to recover prejudgment interest under either statute.
Falkner v. John E. Stubbs d/b/a Mississippi Polysteel, 121 So.3d 899, 903 (Miss. 2013). Damages are considered unliquidated if they are not set forth in the contract or cannot be established by a fixed formula. Id.
The bottom line is that contractors need to make sure that the payment provisions of the contract are clear and that any schedule of values is sufficiently detailed to identify the item of work and the value which the parties have agreed to assign to this item. Of course, any change order work should also be priced and agreed to avoid creating a disputed and unliquidated amount.