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By: Jake Carroll
A recent opinion from the Georgia Court of Appeals provides construction professionals with an excellent example of the benefits and consequences of contract drafting in the face of a payment dispute or legal challenge.
Our story begins in late 2011, when the City of Atlanta entered into a contract with Hogan Construction Group, LLC to build a new fire station in northwest Atlanta. While the contract allocated approximately $3 million for construction costs, the costs soon swelled with the “discovery” of a state waterway and a Georgia Power transmission pole. These discoveries also required the relocation of a retention pond and additional soil testing. When the City refused to pay for these changes, Hogan brought suit under Georgia’s Prompt Pay Act.
Georgia’s Prompt Pay Act provides for the payment to contractors and subcontractors of interest on monies owed on construction projects at the rate of 1 percent per month, and reasonable attorney’s fees. Although the Prompt Pay Act appears expansive in the rights given to contractors and subcontractors, it provides that nothing in the Act prohibits owners, contractors, and subcontractors from agreeing by contract to rates of interest, payment periods, and contract and subcontract terms different from those stipulated to in the Act.
The case reached the Georgia Court of Appeals on the issue of whether Hogan’s claims for interest and attorney’s fees under the Prompt Pay Act were waived by the terms of the City’s contract. Instead of the 1 percent a month provided by statute, the City’s contract provided for interest based on the prime rate, and specifically stated that “[t]his clause shall supersede the Georgia Prompt Pay Act and any modifications or successors to it.” Accordingly, the Court of Appeals reversed the trial court’s decision, and determined that Hogan had waived its claims to interest.
The City also argued that the contract clause waived Hogan’s right to attorney’s fees under the Act, but the Court did not agree. Instead, the Court held that because the City’s contract did not explicitly address attorney’s fees—only interest—Hogan did not waive his right to seek attorney’s fees. So, while the City successfully contracted out of the higher interest rate under the Prompt Pay Act, it failed to proscribe the recovery of attorney’s fees. Ironically, the attorney’s fees will probably cost more than the interest.
For questions about common construction contract terms, including important issues arising out of indemnity and arbitration provisions, feel free to reach out to the Construction Law team at FMG.