Good News for Contractors Who Work on Delaware Public Projects
The Delaware Supreme Court recently held that a contractor performing public work in Delaware does not need to submit a payment application to recover pre-judgment interest on a disputed change order request and that interest will be calculated based on the rate expressly stated in the contract.
The facts of Emory Hill & Company v. Delaware Technical & Community College are as follows. Delaware Technical & Community College (the “College”) and Emory Hill & Company (the “Contractor”) were parties to a construction contract that set forth the rate of interest the College would have to pay for any disputed change order requests. During the course of the Project, the Contractor submitted a change order request, which the College denied. The College also refused to pay the contract rate of interest. Instead, the College argued that the interest was subject to the legal rate set forth in 29 Del. C. § 6516(d)(4)(d). The College further refused to pay any pre-judgment interest. In the litigation, the College took the position that the submission of a payment application in a form approved by the state was a condition precedent to the right to payment and that the Contractor had no rights to payment because it never submitted a payment application.
The Delaware Superior Court rejected the College’s arguments and found that the Contractor was the prevailing party in this dispute. After a trial on the merits, the jury found that the College wrongfully denied the change order request and awarded judgment in favor of the Contractor — at the interest rate set forth in the contract.
On appeal, the Delaware Supreme Court held that the legal rate of interest (2 percent above the prime interest rate as established by the Federal Reserve), set forth in 29 Del. C. § 6516(d)(4)(d), only applies in the absence of an express contract rate of interest. The statutory rate serves as a gap-filler when the contract documents are silent as to the interest rate. Therefore, state agencies are bound by the rate of interest the parties agreed to in the contract documents. Additionally, the Court found that it would be an exercise in futility for a contractor to submit a payment application if the state agency already denied a change order request.
What does this mean for a contractor working on a Delaware public project? Notwithstanding the statutory language of the state prompt pay provisions, there is no requirement to submit a payment application to obtain pre-judgment interest on a judgment obtained from a state agency’s wrongful denial of a change order request. A contractor’s submission of a change order request alone is sufficient to justify payment of that request, at the interest rate set forth in a contract.
Importantly, if you are working on Delaware public projects, be sure to check your change order requests, change orders, and contract to ensure that the public owner is paying you the correct interest rate on your change order work. If you have questions about necessary documentation to support a recovery on, or the proper valuation of, change order work, be sure to contact your attorney during the course of the Project to resolve these issues.