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Does interest accrue on disputed amounts?

A contractor submitted their final invoice on Oct. 7, 2020, the invoice included a 52K amount for a change order and an additional 104,000 in a claim. After reveiw we determined that a total of 68K was warranted and issued a check in that amount, thereby telling the contractor that they could pursue the rest in court. The contractor is refusing to cash the check and claiming that they will still be charging interest on not only the original amount of 156K, but they are claiming an additional approximate amount of 150K costs that they "accrued" upon final review. My question is as I read the prompt payment act, interest does not accrue on disputed items, therefore, until an amount is agreed upon between the owner and the contractor for those disputed items, interest will not be calculated. The project is a local government project.

1 reply

Apr 21, 2021

Yes interest can accrue on disputed amounts, as long as the amount can be calculated with certainty, which it can in most contract cases. Damages such as pain and suffering, which cannot be calculated until there is a jury verdict, do not accrue interest. The statutory rate for prejudgment interest is 10% What you are referring to is Prompt Pay interest, which is 18%. Assuming that the owner properly and timely informed you about a good faith dispute, then 18% interest under the Prompt Pay Act would likely not accrue on the amount owed. But 10% interest would likely accrue. That said, if the contractor refuses to deposit the check and then claims a loss because it could not accrue interest, that is a failure to mitigate damages. Moreover, interest would not accrue on that amount because payment has been tendered. Interest would not accrue on money in their pocket. It accrues on money they do not have.

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