Wadsworth Construction v. Regional Rail Partners – a Cautionary Tale in Public Works Projects

Colorado Court of Appeals Ruling Raises Concerns for Contractors on Public Works Projects

Introduction

In a case of first impression, a fairly recent (August 1, 2024) Colorado Court of Appeals Opinion should give contractors and subcontractors who work on Public Works projects cause for concern. In Wadsworth Construction Company, LLC v. Regional Rail Partners, et al., 2024COA78 (August 1, 2024) the Court of Appeals determined that the inclusion of claimed delay damages and unapproved change orders in a Verified Statement of Claim caused a complete forfeiture of all amounts owed to the contractor (wiping out a $5.7M judgment the contractor had obtained at trial and resulting in an award of attorney’s fees for the project owner, Regional Rail Partners). The Colorado Supreme Court has granted Certiorari at 2024SC000537.

Case Background

Regional Rail Partners (“RR”) designed and was constructing the North Metro (RTD) Rail Line between Union Station and Thornton and RR contracted with Plaintiff Wadsworth Construction Company (“Wadsworth”) to construct several segments of the line. The project suffered “myriad disputes and delays”, with the parties disputing who was responsible for the delays. Wadsworth hired a claims consultant and filed an Amended Verified Statement of Claim under the Colorado Public Works Act, C.R.S. Sections 38-26-101 to 110, for $12.7M.

Wadsworth claimed that, throughout the project, delays caused by RR – such as sections of the project not being ready for construction at the times promised, land acquisitions not being finalized, right-of-way issues, and incomplete plans and designs – repeatedly prevented Wadsworth from timely being able to do its work. For its part, RR defended Wadsworth’s claims, inter alia, asserting that the Verified Statement of Claim was excessive, and as such, it wanted the Court to find that Wadsworth therefore forfeited its entire claim, not just the excessive portion.

The Penalty Provision of the Public Works Act

This is the penalty provision of the Public Works Act, C.R.S. Section 38-26-110. Section 110(1) provides that the contractor forfeits “all rights to the amount claimed” if the contractor files a Verified Statement of Claim (“VSOC”) for an amount greater than what is due, without a reasonable possibility that the amount claimed is actually due, and with the knowledge that VSOC is greater than the amount due.

The Court noted that the Public Works Act’s excessive lien provision is to be liberally construed in favor of the VSOC claimant but strictly construed in determining whether the claimant has the “right to file a verified statement of claim.” Further, the Court determines whether a VSOC is excessive “in light of the information available at the time (of filing the VSOC) to the person who filed the VSOC.”

The Permissible Scope of a Verified Statement of Claim

In commenting on the “Permissible Scope of a Verified Statement of Claim”, in what became an important aspect of the Court of Appeals’ analysis, the Court noted that the contractor can file the VSOC for the “amount due and unpaid” for “furnished labor, materials, sustenance, or other supplies used or consumed by the contractor . . . in or about the performance of the work” OR for “laborers, rental machinery, tools, or equipment to the extent used in the prosecution of the work.” C.R.S. Section 38-26-107(1).

Like the mechanic’s lien statute, “due” means “immediately payable”, so even if the contractor might be entitled to retainage at some point in time, those amounts are not lienable and should not be included in the VSOC.

If the VSOC is excessive, i.e. if it includes amounts that may become due but which aren’t due at the time of filing of the VSOC, comparing/contrasting the mechanic’s lien statute with the Public Work’s Act, the Court found that under the Public Works Act the party filing an excessive VSOC forfeits all rights to the amounts being claimed. Conversely, under the mechanic’s lien statute, the claimant only forfeits the right to the lien, while the claimant retains the right to pursue other remedies to obtain a money judgment.

Concerning Aspects of the Wadsworth Opinion

The foregoing aspects of the Wadsworth opinion are not earth shattering, but the Court went on to make what appear to be conclusions of law that are concerning to the construction practitioner, and undoubtedly, will garner some of the Colorado Supreme Court’s focus.

The Court of Appeals panel stated that because delay claims were disputed, and unliquidated, that it cannot “reasonably be said that this unliquidated claim for delay damages was ‘due’ at the time Wadsworth filed the amended verified statement of claim.” The Court made a similar finding regarding “lost profits” and amounts “in excess of the agreed to change orders.” The Court, pointing to testimony of Wadsworth’s president, found that “Wadsworth knew that the claim encompassed change orders to the contract that Wadsworth was seeking but to which RR had not agreed and unliquidated claims for damages that Wadsworth had not yet proved.” (emphasis in the original).

The Pay-When-Paid Clause Complication

Even more problematic to the practitioner is a statement that the Court made in a footnote. The Court noted that RR was not obligated to pay Wadsworth the unpaid contract balance until after RTD paid RR (suggesting that the contract contained a valid pay-when-paid clause). The Court stated that the trial court should have found that Wadsworth did have knowledge those amounts weren’t yet due, but this suggests that, before Wadsworth could file its VSOC, it had to ascertain if RR had been paid by RTD, or its VSOC would be per se invalid. This could, in certain circumstances, remove the remedy of the statute, for example, if RTD withheld payment until Wadsworth’s VSOC became untimely.

Conclusion

The Wadsworth decision underscores the risks contractors and subcontractors face when filing claims under Colorado’s Public Works Act. By treating disputed or unliquidated amounts as “excessive,” the Court of Appeals has raised serious questions about how contractors can preserve their rights to payment on public projects. With the case now before the Colorado Supreme Court, construction professionals should pay close attention to further developments—and exercise extreme caution in preparing any Verified Statement of Claim.

*This article is intended for informational purposes only and should not be construed as legal advice. Individuals involved should consult with legal professionals for specific guidance tailored to their circumstances. 

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