Construction Law Update – Fourth Quarter 2024

Inside this Issue

1. 1. 1. Wadsworth Ruling by Colorado Court of Appeals Reduces Protection for Downstream Subcontractors and Suppliers under the Colorado Public Works Act
      2. Recent Successes – Massachusetts Highest Court Grant’s Direct Appellate Review on Whether the Statute of Repose Bars a Claim for Contractual Indemnification 
      3. GRSM Construction Attorneys Making Headlines
      4. About GRSM’s Construction Group

I. Wadsworth Ruling by Colorado Court of Appeals Reduces Protection for Downstream Subcontractors and Suppliers under the Colorado Public Works Act

By Briana Fernald

On August 1, 2024, the Colorado Court of Appeals issued a pivotal decision in Ralph L. Wadsworth Construction Company, LLC v. Regional Rail Partners, which could have a significant impact on payment recovery for subcontractors and suppliers performing work on public construction projects. (1) This decision has faced strong opposition from construction professionals and advocates for downstream contractors, who argue that the ruling represents a drastic interpretation of what was intended to be a remedial statute. (2)

With a petition for writ of certiorari now pending before the Colorado Supreme Court, the final ruling in this case will have a significant impact on how unpaid claims are pursued under the Public Works Act (“PWA”). (3) As it stands, the Wadsworth decision not only narrows the payment rights available to subcontractors on public projects, thereby limiting the protections originally intended by the PWA, but also effectively prevents downstream contractors and suppliers from pursuing their claim in its entirety if a court deems their verified statement of claim (VSOC) under the PWA as excessive. (4)

I. Colorado’s Public Works Act

The Colorado Public Works Act was enacted to provide subcontractors and suppliers an alternative method of securing payment for their work on public construction projects. (5) Prior to the PWA, subcontractors had no similar recourse as available under the Mechanic’s Lien Act (“MLA”), which applies solely to private construction projects, and “benefits” and “protects” those who supply “labor, materials, or services” which enhance another’s property. (6) Under the MLA, the supplier of labor or material may assert a lien upon the property in which it served, to the “extent of the goods and services provided.” (7)

The PWA was designed to serve as a counterpart to the MLA for public projects, standing “in lieu of the mechanic’s lien statute.” (8) The PWA and MLA share a common remedial purpose: to protect the rights of downstream players on a construction project by providing a mechanism to secure amounts “due” and “unpaid.” (9)

One method for a subcontractor to secure payment under the PWA is by filing a VSOC with the public entity overseeing the project, detailing the amounts due for work or materials provided. (10) Once the claim is filed, the public entity is required to withhold the amount claimed by the subcontractor until any disputes between the claimant and the general contractor or owner are resolved. (11) Like the MLA, a VSOC effectively creates a lien on the funds held by the public entity. (12) As relevant here, where a subcontractor or supplier claims funds owed by a general contractor, the general contractor may substitute a bond in place of the VSOC. (13) Once the bond is approved by the court, the VSOC is discharged, and the subcontractor may pursue a claim against the surety on the bond. (14)

II. Wadsworth Case Background

In Wadsworth, the Regional Transportation District (RTD) contracted with Regional Rail Partners (RRP) to design and construct the North Metro Rail Line, which was intended to run from Denver to the suburb of Thornton, Colorado. (15) RRP subcontracted Ralph L. Wadsworth Construction Company (RLW) to perform work on three distinct segments of the rail line. (16) The subcontract, inclusive of approved change orders, specified that RLW would be paid approximately $60 million for its services. (17) RLW’s portion of the project was initially scheduled for completion by late 2016. (18)

By early 2018, the project remained unfinished due to a “myriad of disputes and delays.” (19) In response, RLW hired an expert to conduct a time and financial impact analysis to evaluate the delays attributed to RRP. (20) The expert’s findings determined that RRP owed RLW $12,408,496.60, an amount adjusted to account for the “ongoing delays, disruptions, and changes” impacting the project. (21)

In September 2018, RLW filed a Verified Statement of Claim (VSOC) with the Regional Transportation District (RTD) for $12,764,572.40. (22) In response, RRP substituted a corporate surety bond in the amount of $19,147,858.90—150% of the VSOC—allowing the VSOC to be released. (23) RRP was required to maintain the bond for several years while RLW litigated its claims, which included breach of contract, a claim against the substituted bond, failure to promptly pay construction funds, and unjust enrichment, among others. (24)

RRP raised several affirmative defenses against RLW, most notably that the VSOC was excessive under C.R.S. § 38-26-110, arguing that RLW forfeited “all amounts claimed” under the PWA due to the excessive nature of the claim. (25) Finding a “reasonable probability that the amount claimed was due,” the trial court dismissed RRP’s affirmative defense for excessive VSOC. (26) However, despite this finding, the court only awarded RLW $5,718,135.00 of the amount claimed. (27)

III. Colorado Court of Appeals Ruling in Wadsworth

On appeal, a division of the Colorado Court of Appeals reversed the $5.7 million judgment and, in a matter of first impression, interpreted the penalty provision of the PWA concerning excessive claims. (28) The court made two critical findings with far-reaching implications for subcontractors’ and suppliers’ abilities to recover under the PWA, impacting both the scope and method of recovery available to subcontractors: (1) an excessive claim under C.R.S. § 38-26-110 precludes a PWA claimant from recovery under any theory of liability, and (2) a VSOC cannot include unliquidated or disputed damages under C.R.S. § 38-26-107. (29)

First, the division found that while the MLA and PWA share a similar purpose, their penalty provisions encompass dissimilar language, requiring separate interpretations. (30) Under the MLA, an excessive claim results in the claimant forfeiting “all rights to such a lien.” (31) By contrast, the PWA specifies that a claimant forfeits “all rights to the amount claimed.” (32) The division interpreted this distinction to mean that if a claimant under the PWA files an excessive VSOC for an amount greater than what is actually owed, they forfeit not only their right to recover under the PWA, but also their common law rights under any theory to recover for the services and materials provided. (33)

Second, the division ruled that a claim under the PWA can only include amounts that are actually due at the time the VSOC is filed. (34) Allowing a VSOC to include disputed delay damages, the court held, would undermine the purpose of the VSOC process, which is to secure reimbursement for labor and materials already provided—not to serve as “prelitigation leverage” in unresolved disputes over delay damages. (35) As a result, only clear and undisputed amounts may be included in a VSOC. (36) Any claim for disputed amounts is considered unreasonable under the PWA, rendering it excessive and barring the claimant’s rights under the statute and common law for any amount. (37)

IV. The Road Ahead for Claimants under the PWA

On October 17, 2024, RLW submitted a petition for writ of certiorari to the Colorado Supreme Court, requesting a review of the appellate decision and urging the Court to reconsider the disruption to “long-settled practice” in the construction industry, as well as the threat public works posed by the Court of Appeal’s ruling. (38) Over the past few months, the petition has garnered significant support through amici curiae briefs from interested organizations including the Associated General Contractors of Colorado, the American Subcontractors Association of Colorado, and the National Association of Utility Contractors of Colorado. (39)

While the Court of Appeal’s ruling may adhere closely to the letter of the law, it overlooks the practical realities of the construction industry, where multi-party project delays and disruptions are common. Further, it misrepresents the intent of the PWA, which was designed to provide strong protections for downstream subcontractors and suppliers. These parties already contend with substantial power and bargaining imbalances when dealing with upstream entities, such as project owners and general contractors, who hold a financial and strategic advantage in the litigation process. By imposing further limitations on recovery, the ruling appears to undermine the PWA’s original intent—namely, to provide subcontractors and suppliers with a reliable path to secure payment. Moreover, it seems to misinterpret Colorado law, which has historically supported lien claimants and VSOC filers under both the MLA and the PWA.

As supporters of the petition argue, barring the right to request disputed delay damages under the PWA gives upstream parties leverage to categorize any change order as disputed, curtailing the subcontractor’s ability to assert a fully developed claim under the PWA. (40) As a result, even if a project significantly exceeds its original timeline, requiring the subcontractor to stay on the project longer and, thus, provide more services and materials than initially agreed upon, the subcontractor may be at risk of not being able to secure payment for its additional costs. This is because the general contractor or project owner can shift blame to another party, a familiar practice among construction litigants. (41) This creates a “dispute”, which the Wadsworth court held excuses the general contractor from making payment. Meanwhile, a downstream claimant attempting in good faith to recover payment for services or supplies, which are “disputed”, risks forfeiting all potential theories of recovery.

The petition has been opposed by RRP and is now awaiting a decision from the Colorado Supreme Court on whether it will hear the case. Construction professionals advocating for the petition are concerned about the immediate impacts of the Court of Appeals’ ruling on bidding, negotiations, and payment for public construction projects. (42) In the meantime, contractors, subcontractors, and suppliers working on public projects must ensure that any VSOC submitted to a public entity includes only amounts that are currently due, payable, and undisputed, or they risk forfeiting their entire claim.

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1. Ralph L. Wadsworth Constr. Co., LLC v. Reg’l Rail Partners, 558 P.3d 641 (Colo. App. 2024)
2. Ralph L. Wadsworth, Petition for Writ of Certiorari, No. 24SC537 (Colo. Oct. 17, 2024) (“Pet. for Writ”).
3. C.R.S. § 38-26-107.
4. Wadsworth, 558 P.3d at 649–50; C.R.S. § 38-26-110.
5. South-Way Const. Co. v. Adams City Serv., 458 P.2d 250, 517 (Colo. 1969).
6. Brannan Sand & Gravel Co., Inc. v. F.D.I.C., 928 P.2d 1337, 1342 (Colo. App. 1996).
7. Id.
8. South-Way Const. Co., 459 P.2d at 517.
9. Id.
10. C.R.S. § 38-26-107.
11. Id.
12. Wadsworth, 558 P.3d at 647.
13. Id.
14. Id.
15. Id. at 645.
16. Id.
17. Id.
18. Ralph L. Wadsworth Constr. Co. LLC v. Regional Rail Partners, et al., No. 2019CV30345, *4-6 (Colo. Dist. Court. Sept. 23, 2022) (Denver County).
19. Wadsworth, 558 P.3d at 645.
20. Id.
21. Id.
22. Id.
23. Id. at 646.
24. Id.
25. Ralph L. Wadsworth Constr. Co. LLC., No. 2019CV30345 at *25.
26. Wadsworth, 558 P.3d at 648.
27. Id.
28. Id.; C.R.S. §§ 38-26-107, 110.
29. Wadsworth, 558 P.3d at 649–50.
30. Id. at 649.
31. Id. at 648 (emphasis added); C.R.S. § 38-22-128
32. Wadsworth, 558 P.3d at 648; C.R.S. 38-22-110(1) (emphasis added).
33. Wadsworth, 558 P.3d at 649.
34. Id. at 649–50.
35. Id. at 650.
36. Id.
37. Id.
38. Pet. for Writ at 9.
39. See Associated General Contractors of Colorado, Amicus Curiae Brief in Support of Petition for Writ of Certiorari, No. 2024SC1234 (Colo. October 18, 2024) (“AGC Amici Brief”); American Subcontractors Association of Colorado, Amicus Curiae Brief in Support of Petition for Writ of Certiorari, No. 2024SC1234 (Colo. October 24, 2024) (“ASA Amici Brief”); National Association of Utility Contractors of Colorado, Amicus Curiae Brief in Support of Petition for Writ of Certiorari, No. 2024SC1234 (Colo. October 24, 2024) (“NAUC Amici Brief”).
40. See AGC Amici Brief at 6–7.
41. See id. at 8.
42. Pet. for Writ at 9.

II. Recent Successes – Massachusetts Highest Court Grant’s Direct Appellate Review on Whether the Statute of Repose Bars a Claim for Contractual Indemnification

By: Eric A. Howard

The Massachusetts Supreme Judicial Court (SJC) recently granted direct appellate review of a trial court’s entry of summary judgment in favor of GRSM’s client.  The pending case, Trustees of Boston University v. Clough, Harbour and Associates, LLC, SJC 13685, concerns the design and construction of a parking garage and synthetic turf field at Boston University (“Project”).  GRSM successfully moved for summary judgment in the trial court on the basis that the claims against GRSM’s client were barred by the Massachusetts Statute of Repose (SOR).  The issue on appeal is whether the SOR, which sets an absolute six-year limitation for filing tort claims related to improvements to real property, bars a contractual indemnification claim.  The SJC last addressed this issue in Gomes v. Pan American Assoc., 406 Mass. 647, 648 (1990), which held that the SOR did not bar a contractual indemnification claim based on its analysis of the indemnification language at issue.  The SJC noted in Gomes that the SOR “does not bar an action founded on an indemnification agreement of the type in this case. . . . [because] [t]he gist of action is essentially contractual—the enforcement of a contract of indemnification.  The language of the indemnification provision is overwhelmingly contractual.”  Id. 406 Mass. at 648 (emphasis added).

Following the issuance of the Gomes decision in 1990, several Massachusetts trial courts interpreted Gomes narrowly and held that the SOR barred contractual indemnification claims where the nature or “gist” of the action was negligence, and the basis for contractual indemnification was nothing more than the defendant’s alleged failure to comply with the implied duty of reasonable care (i.e., negligence).  These trial court decisions, however, created uncertainty on the breadth of the holding in Gomes and whether certain types of contractual indemnification claims are subject to the SOR.

In 2023, the Massachusetts Appeals Court, the intermediary appellate court, issued its decision in University of Massachusetts Building Authority, et al., v. Adams Plumbing & Heating, Inc., 102 Mass. App. Ct. 1107 (2023), which affirmed the trial court’s dismissal of a contractual indemnification claim against GRSM’s client based on the SOR.  In UMass, the Appeals Court noted that Gomes should be read narrowly and applies only to similarly worded indemnity provisions like the one at issue in Gomes.  The Appeals Court further noted that a plaintiff may not escape the consequences of the SOR by recasting a negligence claim as a contractual indemnification claim.  that are overwhelming contractual.  Although the UMass decision cogently clarified when the SOR bars a claim for contractual indemnification, it is not binding precedent.

The oral argument in Boston University is scheduled for early February 2025 and the SJC is likely to issue a decision later in the year.  The decision should resolve once and for all whether a contractual indemnification claim can be barred by the SOR.

III. GRSM Construction Attorneys Making Headlines

Partner Soña Garcia and Senior Counsel Catherine Delorey presented WIC Tuesday Talks: Building the Future: Harnessing Generative AI in Construction Law on November 12, 2024. They discussed considerations for construction lawyers to develop an understanding of the potential for using Generative AI when researching factual or legal aspects of issues that arise out of construction projects. Topics covered included how Generative AI could play a role in our day-to-day, potential ethical and professional concerns, and example tools and scenarios.

IV. About GRSM’s Construction Group

GRSM’s Construction Group consists of more than 220 lawyers in offices nationwide and is currently ranked No. 4 out of the Top 50 Construction Law Firms in the Nation, by Construction Executive.

GRSM’s construction attorneys focus their practice on the comprehensive range of legal service required by all participants in the construction industry – architects, engineers, design professionals, design joint ventures, owners, developers, property managers, general contractors, subcontractors, material suppliers, product manufacturers, lenders, investors, state agencies, municipalities, and other affiliated consultants and service providers.

We serve clients who design, develop, or build all types of structures, including commercial buildings, single and multifamily residential projects, industrial facilities, universities, hospitals, museums, observatories, amusement parks, hotels, shopping centers, high-rise urban complexes, jails, airports, bridges, dams, and power plants. We also have been involved in projects for tunnels, freeways, light rail, railway stations, marinas, telecom systems, and earth-retention systems. Our experience includes private, public, and P3 construction projects.