A recent Colorado Court of Appeals decision offers essential guidance for subcontractors filing claims under the Colorado Public Works Act. The case clarifies what can and cannot be included in a verified statement of claim, particularly concerning delay damages, and highlights the severe consequences of filing an excessive claim. The outcome serves as a cautionary tale for subcontractors to keep claims clear, accurate, and well-supported to avoid potentially losing an entire claim.

Colorado Verified Statement of Claims on Public Projects

A Colorado Verified Statement of Claim (VSOC) ensures subcontractors and suppliers get paid for labor and/or materials provided to a public construction project. In CO, if a contractor or sub hasn’t been paid, they can file a VSOC with the public entity in charge of the project. The VSOC essentially operates as a lien on project funds, meaning the public entity must hold onto the claimed amount until the payment dispute is resolved. The claim must be signed under oath and only include amounts due for work or materials provided. However, as highlighted in the recent Wadsworth case, understanding the proper scope of what can be included in a VSOC is crucial, as filing an excessive or disputed claim can lead to severe legal and financial consequences.

Wadsworth Case Background

The case in question is Ralph L. Wadsworth Constr. Co. v. Reg’l Rail Partners

Project Snapshot

In this case, Wadsworth was hired as a subcontractor on the North Metro Rail Line project, with a contract value of nearly $60 million with Regional Rail. However, the project faced a slew of delays and disputes. As the project neared completion, Wadsworth filed a VSOC claiming almost $13 million from RTD, the public entity overseeing the project. RTD bonded off the claim, and several months later, Wadsworth sought to enforce it. RTD contested the claim, arguing that it was excessive. At trial, the court ruled in favor of Wadsworth, awarding about $5.7 million. RTD appealed the decision.

The appeals court focused on two main issues:

  1. Whether unliquidated breach of contract claims for delay damages could be included in a VSOC.
  2. The consequences of filing an excessive claim.

Permissible Scope of a CO Verified Statement of Claim

Under Colorado’s Public Works Act §38-26-27, subcontractors can file a VSOC 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 for “laborers, rental machinery, tools, or equipment to the extent used in the prosecution of the work.”

The court found that delay damages – such as lost profits, overhead costs, and unapproved change orders – did not fit within the scope of what can be claimed under the statute. These damages are considered “unliquidated,” meaning they are not fixed or agreed upon at the time of filing. The court emphasized that a verified statement of claim should only include amounts that are clearly due, such as labor or materials already provided, rather than future or disputed claims.

As the court noted, “Due is defined as ‘[i]mmediately enforceable’ or ‘[o]wing or payable; constituting a debt.’ In other words, an amount is not ‘due’ if it will only be owed upon some contingency or after the satisfaction of a condition precedent.” The ruling makes it clear that subcontractors cannot include unapproved or disputed amounts in their claims.

Impact of Filing an Excessive Claim

The court also addressed the consequences of filing a claim for an amount greater than what is actually due. According to Colorado law, if a subcontractor files an inflated claim, especially when they know it is excessive, they forfeit the entire claim.

The appeals court ruled that Wadsworth’s $12.7 million claim was excessive due to the inclusion of unapproved change orders and disputed delay damages. As a result, despite the trial court’s earlier award of $5.7 million, the appeals court ruled that Wadsworth forfeited the entire claim. This underscores the serious consequences of overestimating the amount due and highlights the importance of ensuring that claims are reasonable and supported by clear evidence. Importantly, the court found that Wadsworth “knew” the claim was excessive because it included amounts not agreed upon by the parties, such as unapproved change orders and delay damages. This underscores that subcontractors must be mindful of their knowledge when submitting claims to avoid risking forfeiture.

Key Takeaways

The Wadsworth case serves as a strong reminder for subcontractors to ensure claims are based on amounts that are clearly due and fully supported by documentation. The court ruled that delay damages, unapproved change orders, and impact costs are not automatically lienable, as they are often unliquidated and contingent on future events. This reinforces the need to include only amounts for work that has already been performed, such as labor and materials. Additionally, submitting an excessive claim can have severe consequences, as seen when Wadsworth’s $12.7 million claim was reduced to $5.7 million, and ultimately forfeited due to the inclusion of disputed and unsubstantiated amounts.

The decision also underscores the importance of accurate and thorough documentation. Wadsworth’s failure to finalize or execute change orders contributed to the court’s decision to invalidate part of its claim. For construction professionals, this case highlights the need to file only for undisputed, liquidated amounts and to keep disputed items separate. Moreover, the court’s focus on Wadsworth’s “knowledge” of the claim’s excessiveness serves as a crucial reminder that subcontractors must carefully consider whether they are filing claims for amounts that are genuinely owed and agreed upon by all parties involved.

While this case dealt with claims under the Colorado Public Works Act, the result may have ripple effects on private mechanics liens as well, making it crucial for contractors to be cautious when filing claims for damages beyond labor and materials. The Wadsworth case sets a precedent that may influence both public and private construction disputes moving forward, urging subcontractors to avoid claims that are overly broad or uncertain.

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