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.

 

 

 

 

Delay in Issuance of Time Extension May Constitute Active Interference or Bad Faith

Contractors frequently encounter circumstances where they are entitled to an extension of the contract time and request the extension, but, in some instances, the owner and/or architect refuses to timely act on the request by either granting or denying the request. When a contractor encounters such a circumstance, it must decide whether to accelerate its performance to avoid missing the contract completion date and being assessed damages by the owner or maintain its schedule based upon the assumption the contractor will receive the extension and risk a potential termination for default by the owner for not making adequate progress toward the completion date. This is the very reason why the Mississippi Supreme Court suggested that the "refusal to grant extensions on a timely basis can reasonably be interpreted as active interference or bad faith" and could justify the award of damages to a contractor.

Contractors should therefore not just request an extension of time with supporting documentation but also demand a timely response. If no response is forthcoming, the contractor should then advise the owner and/or architect of the consequences of a further delay in a decision.

Waiver of Right to Assess Liquidated Damages

Contractors who have a liquidated damage provision in their contracts should be aware that their assessment can be waived by the conduct of the owner.  The Mississippi Supreme Court has found that an owner was estopped from asserting delay damages where it failed to timely assert that right.  Contractors faced with a liquidated damage provision may therefore be able to defend against assessment of these damages where the owner fails to affirmatively and timely assert the right to them.  This may occur when the owner waits until the end of the project, long after the completion date has passed, to claim its right to liquidated damages without deducting them as they accrue.