Prompt Payment — An Update
Kegler Brown Construction Newsletter November 1, 2007
Unfortunately, there is very little case law to construe what constitutes a "disputed lien or claim" to allow a contractor to withhold monies it has received from the owner for the subcontractor's work, without violating the Prompt Payment Act and incurring liability for 18 percent interest and attorney's fees. However, one recent case has begun to shed some light on this issue.
In the unreported case of Solomon v. Excel Marketing, Inc., No. 95-CA-76 (Sept. 13, 1996), the Court of Appeals for Clark County found that the Prompt Payment Act applied to private construction projects, as well as public construction projects, and then went on to rule upon the propriety of holding money from a subcontractor for allegedly defective work. In that case, the contractor had maintained that the subcontractor had breached the subcontract by failing to install the fixture according to code. The trial court found the subcontractor had breached the contract, but awarded the subcontractor some money under the principle of quantum meruit. However, the subcontractor was denied recovery for 18 percent interest and attorney's fees under the Prompt Payment Act because the contractor was entitled in good faith to withhold payment based upon the breach of contract.
While certainly not dispositive of the issue, this case should assist contractors in making the argument that they are entitled to withhold monies when they have a "disputed claim" against the subcontractor for defective work or delay, particularly if the subcontractor's shortcomings rise to the level of a breach of contract.