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Owner had no duty to make prompt payment to its construction contractor even though the architect’s refusal to certify final payment was based on an incorrect understanding of the specifications of the construction contract. The “topsoil” specification required the contractor to provide at least four inches of fill. The architect enforced that section instead of the specification in the addendum that stated, “The ball fields can be lowered as required to avoid bringing in any fill dirt.” The trial court found the owner in breach of contract, and awarded the contractor its costs plus prejudgment interest pursuant to the Missouri prompt payment act. On appeal, the appellate court reversed the judgment with regard to the prejudgment interest. The court explained that despite the incorrect decision by the architect, a public owner does not become liable under the prompt payment act unless it fails to make prompt payment after receiving a final payment certificate from the architect. In this case, the owner acted reasonably in not making payment since its architect had decided not to issue the certificate.

Another interesting aspect of this case is that the court dismissed the owner’s liquidated damages counterclaim against the contractor since oral assurances had been given to the contractor during project performance by the owner’s superintendent, the architect and the architect’s representative that there would be no assessment of liquidated damages. Textor Construction, Inc. v. Forsyth R-III School District, 2001 Mo. App. LEXIS 1840.

Risk Management Note: The essence of the court’s reasoning is that the public owner did not act in bad faith since it relied upon it’s architect’s decision. The contractor seemed to find favor with the court, however, by escaping liquidated damages on the basis of oral statements by the owner despite the lack of written waiver of the liquidated damages. As a general matter, oral changes to a contract are not recognized, and it is advisable for a contractor to obtain changes in writing. But contractors sometime conclude that there may be a risk in insisting on a written confirmation. In a similar way, a design consultant may hesitate to insist on a written memorandum from the project owner waiving the owner’s right to recover extra costs paid to the contractor as a result of changes potentially attributable to design acts, errors or omissions. The consultant may deem it safer to just let the “sleeping dog” lie, assuming that the owner will honor the oral decisions made during project construction.

The issue of liquidated damages probably would never have come up in this matter except for the fact that the contractor filed suit against the owner for other reasons. Once a suit is filed, it must be anticipated that counsel for the owner will carefully review the contract and seek to enforce its every detail, including the requirement that changes and waivers are not binding unless recorded in writing. This particular case provides us with some good food for thought.

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 4, No. 3 (Mar 2002).

Copyright 2001, ConstructionRIsk.com, LLC