It's Cheaper to Pay On Time for a Public Owner

By: Scott J. Hedlund

The Second Circuit recently ruled that a contractor is entitled to attorney's fees under The Public Works Act (La. R.S. 38:2191) when the public owner fails to make timely final payments after formal and final acceptance of a Project.

In Quality Design and Construction v. City of Gonzales, the City contracted with plaintiff, as the low bidder, to construct a municipal water park for children. Substantial completion was scheduled for July 16, 2004. In August 2004, a Certificate of Substantial Completion was signed by the project engineer and the City's mayor, with a date of substantial completion as July 30, 2004 along with a clear lien certificate obtained from the Ascension Parish Clerk of Court . Thereafter, the City refused to pay the outstanding balances and made no further payments. The Contractor sued for the outstanding balance and the City answered seeking liquidated damages. The trial court awarded the Contractor the amount retained, minus the liquidated damages, but denied the Contractor the requested attorney's fees for late payment.

La. R.S. 38:2191(B) states that “[a]ny 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 attorneys fees.” The Trial Court denied the Contractor's request for attorney's fees finding "no evidence in the record that there was ever a formal, final acceptance of the work as required by La. R.S. 38:2191".

The Appellate Court overturned the trial court decision, awarded attorney fees and remanded to the Trial Court for a determination as to the appropriateness and reasonable nature of the fees. This decision was based on La.R.S. 38.2241.1 which states:

Whenever the public entity enters into a contract for the construction, alteration, or repair of any public works, in accordance with the provisions of R.S. 38:2241 , the official representative of the public entity shall have recorded in the office of the recorder of mortgages, in the parish where the work has been done, an acceptance of said work or of any specified area thereof upon substantial completion of the work . . . The recordation of an acceptance in accordance with the provisions of this Section upon substantial completion shall be effective as an acceptance for all purposes under this Chapter.

The First Circuit unanimously agreed that the signing of the Certificate of Substantial Completion by the City's Mayor, the "official representative", met this requirement. As such, the Court concluded that is was "evident from the record that the City failed to tender final payment within 45 days following its receipt of a clear lien certificate and after what amounted to formal final acceptance. Based upon the mandatory provisions of La. R.S. 38:2191(B) , the City is liable for the reasonable attorney fees incurred by Quality. Accordingly, the trial court's denial of reasonable attorney fees to Quality based upon the City's failure to make timely payment pursuant to the provisions of the Public Works Law is reversed."

Although the liquidated damages charged by the City were upheld, this case is important as it clearly establishes a general contractor's entitlement to attorney fees when not timely paid for accepted work.

Written for The Legal Blueprint, 2008, Issue 1.