How to Seek Interest and Attorneys’ Fees Against Slow-Paying Public Entities

How to Seek Interest and Attorneys’ Fees Against Slow-Paying Public Entities

Effective August 2018, the Louisiana Legislature amended the “Prompt Pay” statute in the Public Works Act, allowing contractors to compel public entities to pay progressive stage payments and final payments via mandamus proceeding, including interest and attorneys’ fees. When a public entity fails to timely pay a contractor and certain deadlines lapse, a contractor can file proceedings to force the public entity to pay, collect interest of up to 15% of the outstanding payment application, and potentially reasonable attorney’s fees. Public entities have become aware of these changes and are responding quickly because of the onerous interest charges.

I.   What is a “Mandamus” Action?

A mandamus is an expedited legal proceeding that can be used to compel a public officer to perform that officer’s ministerial duty as required by law. Pursuant to La. R.S. 38:2191(A), all contracting public entities “shall” pay all obligations, progressive stage payments, and final payments when they become due and payable under the contract. The use of the word “shall” in this provision unequivocally expresses a public entity’s mandatory duty to fulfill its contractual obligations as they become due. If a public entity fails to fulfill its mandatory duty under La. R.S. 38:2191(A), then that failure to perform subjects the public entity to mandamus to compel payment of the sums currently due under the contract.

The right to a mandamus action further allows the contractor to put the public entity’s nonpayment front and center. The mandamus statute dictates that the court shall hear the dispute no more than ten days after suit is filed. Although some short, reasonable continuances may happen, the typical procedural delays that plague litigation are sidestepped in mandamus actions, pushing the matter toward expedited resolution.

II.   Entitlement to Interest and Attorneys’ Fees for Progress Payments

Assume the public entity received your properly-submitted payment application on January 10, 2019 for $100,000.00. La. R.S. 38:2191 (B) dictates that a public entity “shall” pay all progressive stage payments within forty-five days. If the public entity has no reasonable cause for failing to pay, then as of February 24, 2019 (45 days later), the payment is overdue and interest and reasonable attorneys’ fees begin to accrue. Interest is charged at one-half percent accumulated daily, not to exceed fifteen percent. Thus, if the public entity does not pay by March 26, 2019, La. R.S. 38:2191 gives the contractor a cause of action to collect $115,000.00, in addition to reasonable attorneys’ fees associated with collecting the payment.

III.   What is “Reasonable Cause” for Failing to Pay under La. R.S. 38:2191?

The main defense that a public entity has against a mandamus action under La. R.S. 38:2191 is that the public entity had “reasonable cause” to withhold payment. The mandamus rules dictate that a public entity is not subject to mandamus action compelling payment of a progressive stage payment and/or final payment when the terms of the contract give the public entity “discretion” as to whether payment is due and payable.[1] Mandamus relief under La. R.S. 38:2191 is available only when there is no discretion left to the public entity as to whether payment is due and payable under the terms of the contract.[2]

The public entity in Wallace C. Drennan v St. Charles Parish[3] asserted it had reasonable cause to withhold payment pursuant to contract terms requiring the engineer to sign off on payment applications. The Court found that such a contractual provision could be “reasonable cause” if the contractor failed to comply with the provision, but found the provision inapplicable under the particular facts of that case.[4] The takeaway from Drennan is that enforcement of the deadlines found in La. R.S. 38:2191 require the contractor to pay attention to details of the operative contract. This is particularly true when the details relate to progress payments and final payment,  with emphasis on the methods of submitting payment applications and obtaining approval.

Delays in payment by public entities can wreak havoc on a general contractor’s cash flow and business operations, as well as upset important business relationships with subcontractors. We recommend that general contractors consider the potential advantages of asserting entitlement to interest and quick mandamus actions on public projects. While there are currently no Louisiana appellate cases regarding these new additions to La. R.S. 38:2191, our experience has been that public entities have taken notice of the new interest provision and are quickly setting these matters.

[1]      Wallace C. Drennan, Inc. v. St. Charles Par., 16-177 (La. App. 5 Cir. 9/22/16), 202 So. 3d 535, 544.

[2]      Id.

[3]      Id.

[4]      Id. at 545.