Ruling on Missouri Prompt Payment Act

In Vance Brothers, Inc. v. Obermiller Construction Services, Inc., 181 S.W. 3d 562 (Mo. en blanc 2006) the Missouri Supreme Court ruled that disputes during construction will not justify the withholding of schedule payments, thus subjecting an offending party to the payment of 18% interest and attorneys fee. So what is an owner to do if the contractor breaches the agreement?

Fairness In Private Construction Contract Act

Nick Badgerow of our litigation group recently outlined the terms of Kansas Senate Bill 33 which is being submitted to Governor Sebelius for signature:

"Payment of undisputed amounts must be paid by the owner to the contractor within 30 days of a timely, properly completed pay request.  Then, payment of undisputed amounts to subcontractors must be made within 7 business days after receipt of payment from the owner, if a timely, properly completed pay request has been made by the subcontractor.  Retainage cannot be held for more than 10% of the disputed amount due.  If properly due payments are not made when due, a late payment penalty of 18% per annum is assessed until payment is made.  (These provisions all apply to sub-contractors paying sub-subcontractors as well.) 

 

All private construction contracts in Kansas made after the effective date of the act (which will probably by July 1) must NOT have the following provisions:

 

- waiver or release of the right to resolve disputes through litigation or binding arbitration;

- waiver or release of mechanics lien rights, except to the extent of payment received;

- waiver or release of subrogation for losses paid by liability or workers compensation insurance, except claims paid by a consolidated or wrap-up insurance program, owners/contractors protective liability insurance, or project management protective liability insurance.

 

In addition, a contract provision that payment from a contractor or subcontractor is contingent on receipt of payment from any other private party, including the owner, is no defense to a claim to enforce a mechanics lien or payment bond.

 

Any party has the right to suspend work if not paid, or if retainage is not released, and the costs of the suspension are borne by the party obligated to make payment.

 

In the event of litigation or arbitration, the "loser pays" court or arbitration costs, including reasonable attorneys' fees of the other party/parties. 

 

These are important changes and should be considered when reviewing contracts in Kansas, and in preparing sub-subcontractor agreements.