On August 1, 2024, a division of the Colorado Court of Appeals issued an opinion regarding the nature of delay damages asserted in a verified statement of claim, the Colorado statutory lien system for constructions services provided in public works projects. This opinion may have significant repercussions on construction industry professionals working in Colorado. In the case Ralph L. Wadsworth Construction Company LLC v. Regional Rail Partners et al, 2024CIA78 (case number 22CA2154), a subcontractor (Wadsworth) on a public project under prime contractor (Regional Rail) asserted claims for non-payment through a verified statement of claim (“VSOC”) pursuant to C.R.S. §§ 38-26-101-110. A VSOC requires a public entity to withhold the amount at issue from payment to the prime contractor until the underlying dispute is resolved, and is often considered similar to mechanic’s lien claims, but for public projects.
Under the portion of the Colorado Public Works Act that governs the substance of a VSOC, the claiming party may only assert a claim for the amount due and unpaid for “furnished labor, materials, sustenance, or other supplies used or consumed by a contractor or … subcontractor in or about the performance of the work contracted to be done or that supplies laborers, rental machinery, tools, or equipment to the extent used in the prosecution of the work.” C.R.S. § 38-26-107(1)). If it is later found in judicial proceedings that a claim alleged “an amount greater than the amount due without a reasonable possibility that the amount claimed is due and with the knowledge that the amount claimed is greater than the amount due”, then the claiming party “shall forfeit all rights to the amount claimed” and becomes liable for the costs and attorneys’ fees of the defending party. C.R.S. § 38-26-110.
Therefore, under C.R.S. § 38-26-110, a party submitting a VSOC is barred from claiming an amount “greater than the amount due.” Looking at case law in the context of private mechanic’s liens, the Court stated that “due” is defined as “’[i]mmediately enforceable’ or ‘[o]wing or payable; constituting a debt.’” Wadsworth, 2024 COA 78, at ¶ 27 (quoting Byerly v. Bank of Colo., 2013 COA 35, ¶ 41). The Court further explained: “[i]n other words, an amount is not ‘due’ if it will only be owed upon some contingency or after the satisfaction of a condition precedent.” Id.
In the underlying dispute, Wadsworth had expressly stated that the vast majority of the amounts it claimed were due under its VSOC were for unliquidated delay damages, amounts “for lost profits, contractual mark-ups, and nonrental equipment costs” and “extended overhead” costs due to alleged delays caused by Regional Rail. Id. at ¶ 37.
The Court ultimately found that such delay damages were not “due” at the time the VSOC was filed and that other items like lost profits, contractual mark-ups, nonrental equipment costs, and overhead for idled equipment were not “within the ambit” of labor, materials, or supplies used or consumed in the performance of work under C.R.S. § 38-26-107(1). Id. at ¶¶ 37-39.
In a section of the opinion, the Court pointed to the Subcontractor’s president’s testimony regarding the inclusion of change order requests that were not memorialized and executed as formal change orders in the VSOC as evidence that the Subcontractor knew its claim was excessive. Id. at ¶¶ 41-43.
Along those same lines, in footnote 10 of the opinion, the Court indicated that amounts were not “due” and subject to a VSOC until these amounts were “due” pursuant to a pay-if-paid clause – i.e., after the prime contractor had received payment from the owner.
The holding of Wadsworth generally (which relies on extensive comparison of case law in the private mechanic’s lien context), and the sections referenced above, have caused concern regarding mechanic’s lien claims. While the Court attempted to note the differences between the VSOC legal standards and the standards in Colorado’s private mechanic’s lien statute, the Court heavily relied on caselaw pertaining to mechanic’s liens to come to its conclusions.
This case is contrary to many practitioners’ interpretation and application as it relates to VSOC and mechanic’s lien claims, and provides pause as to whether and to what extent such claims can include unexecuted or not-yet-memorialized change orders, delay damages, amounts subject to pay-if-paid clauses, and direct overhead costs. As such, professionals and attorneys active in the Colorado construction industry are keeping a close eye on this case as it is escalated to the Colorado Supreme Court.
On October 17, 2024, Wadsworth filed a petition for writ of certiorari with the Colorado Supreme Court, specifically seeking clarification on 1) whether a claimant found to have filed an excessive VSOC forfeits only its statutory remedies under the Colorado Public Works Act or all available legal remedies (including common law claims), and 2) whether a VSOC may include disputed amounts related to delay damages or whether VSOC claims must be limited to undisputed, liquidated amounts. The Supreme Court has not, as of the date of this article, granted or denied Wadsworth’s petition.
