By G. Edgar "Eddie" James

Many contractors and subcontractors struggle at the end of construction projects with their ability to receive timely payment, particularly when there is a dispute as to entitlement for payment of extra work, or where the property owner is asserting backcharges which the contractor or subcontractor disputes.

Contractors and subcontractors often will decide not to pursue payment in court or arbitration, because the costs in attorney fees may not seem worth the possible gain. If you have to spend $40,000 to collect $50,000, then it may make sense from a business perspective-particularly evaluating the time involved in pursuing litigation or arbitration-to just walk away.

Recovering Attorney Fees
Many contractors and subcontractors are not aware that they may have a right to attorney fees and high rates of interest if an owner or upstream contractor does not pay for the work, materials or services provided by the contractor or subcontractor. Both Kansas and Missouri have private "prompt pay" statutes, which apply to private construction contracts and entitle a prevailing contractor or subcontractor to attorney fees in arbitration or litigation.

The Missouri statute states that a court may award-in any action for payment under a contract for private design or construction work-attorney fees to the prevailing party, as well as interest at a rate of up to 1.5 percent per month from the date payment was due pursuant to the terms of the agreement. This statute does not apply to construction contracts involving owner-occupied residential property of four units or less.

Similarly, a newly enacted Kansas law provides sweeping changes to private construction contracts in a number of different areas, including schedule, retainage and payment. Concerning prompt payment in private construction, the statute states that if an owner fails to pay a contractor within 30 days following receipt of an "undisputed" request for payment, the owner shall pay interest to the contractor beginning on the 31st day computed at an annual rate of 18 percent on the undisputed amount. Further, concerning subcontractors, the statute says the contractor shall pay its subcontractors within seven days of receipt of payment from the property owner, provided the subcontractor has provided a timely, properly completed and undisputed request for payment to the contractor. The Kansas statute further provides that the prevailing party shall have a right to recover its costs and reasonable attorney fees. Similar to the Missouri statute, this statute does not apply on public projects and does not apply to residential housing of four units or less.

Law Cuts Both Ways
Contractors should be aware that both Kansas and Missouri private prompt pay statutes state that the prevailing parties shall have a right to recover their attorney fees. This means that if a contractor brings suit and makes a prompt payment claim, and loses, that contractor would be liable for the owner's attorney fees, as well as its own.

These statutes should change and shape the strategy employed in pursuing claims for payment and should impact the of risk analysis in deciding whether to pursue a claim for payment. Contractors might have more incentive to pursue valid claims because attorney fees won't consume the financial award if they win. On the other hand, contractors must carefully weigh the merits of their case, because they risk paying additional attorney fees if they lose.

G. Edgar "Eddie" James is an attorney with Shughart Thomson & Kilroy, PC. You can reach him at (816) 395-0661 or .