Here at Deutsch Kerrigan, the attorneys in our construction law group represent numerous contractors, engineers, architects, surveyors and others involved in the construction industry. We consequently stay abreast of changes in the law that could affect our clients. The recent Fourth Circuit case of Woodrow Wilson Construction LLC v. Orleans Parish School Board is just such a case with important implications for contractors and owners of public works projects.
Case Background
In this case, the Orleans Parish School Board contracted with Woodrow Wilson Construction to build a new elementary and middle school. The $22 million contract called for substantial completion of the project by the summer of 2014 and provided for liquidated damages in the amount of $5,000 per day should the project not be completed on time. It was not. In fact, substantial completion failed to occur until February of 2016, 517 days late. Consequently, the School Board refused to pay Woodrow Wilson the final payment due.
Woodrow Wilson filed two suits against the School Board, one for contract damages, and one for mandamus; i.e., a judicial writ ordering the School Board to perform its statutory duty under Louisiana Revised Statutes Section 38:2191 of the Louisiana Public Works Act. The Fourth Circuit granted Woodrow Wilson’s petition for mandamus, holding that the School Board could not hide behind the contract’s liquidated damages clause and use the alleged liquidated damages claim as an offset to refuse to pay the retainage due to Woodrow Wilson. The Fourth Circuit not only awarded Woodrow Wilson damages, but also attorneys’ fees. It did, however, leave the door open for the School Board to prevail in the contract case.
Summary of the Court’s Holding
The Fourth Circuit held that La. R.S. 38:2191 does the following:
- Requires public entities to “promptly” pay all obligations arising under public contracts as they become “due.”
- Mandates that final payment is “due” within forty-five days once the public entity: (1) makes formal, final acceptance; and (2) receives the clear lien certificate.
- Grants a contractor who has not received final payment a legal remedy in which the court is required to compel the public entity to immediately pay the contractor, along with accumulated interest and the contractor’s attorney’s fees.
- Cannot be waived by a public works contract, which prevents public entities from avoiding its requirements.
It also held that Woodrow Wilson had “fully satisfied” all six contractual and statutory requirements for substantial completion and was therefore entitled to receive its final payment from the School Board.
Going Forward
While this case law is only controlling in those district courts in the parishes of Orleans, Plaquemines and St. Bernard, the parishes encompassed by the Fourth Circuit, both the First and Fifth circuit courts of appeal have decided cases similar to this one in favor of the contractors. In addition, the Louisiana Supreme Court has yet to decide whether or not to grant certiorari on any of these cases.
Also in 2018, the Louisiana legislature amended the prompt pay statute related to final payments on public works to require a public entity to pay attorney’s fees and interest to a contractor in the event that final payment is not made after formal final acceptance and within forty-five days following receipt of a clear lien certificate. The Louisiana legislature amended La. R.S. 38:2191 as follows:
B. (1) Any public entity failing to make any progressive stage payment within forty-five days following receipt of a certified request for payment by the public entity without reasonable cause shall be liable for reasonable attorney fees and interest charged at one-half percent accumulated daily, not to exceed fifteen percent. Any public entity failing to make any final payments after formal final acceptance and within forty-five days following receipt of a clear lien certificate by the public entity shall be liable for reasonable attorney fees and interest charged at one-half percent accumulated daily, not to exceed fifteen percent.
This potential penalty of interest charges (up to fifteen percent) and attorney’s fees should function as significant motivation for public entities to promptly issue final payment to contractors. Given the Woodrow Wilson decision and the amendment to La. R.S. 38:2191, 2018 was a very good year for contractors on Louisiana public works projects.
Contributed by:
Brian S. Schaps
Partner
bschaps@deutschkerrigan.com
