A contractor sends an inflated invoice to an owner for a completed project. The owner fails to pay anything against that invoice – even the amount that had been agreed to. The contractor eventually files suit, the court awards interest plus penalties of 1% per month on the unpaid balance, and the interest and penalties add almost fifty percent to the original amount due. There’s a lesson here.

In the case of Dorr v. LaCoste,[1] the Vermont Supreme Court held that the owner had an obligation, under the VT prompt pay act, to pay undisputed amounts upon receipt of an invoice. Thus, the contractor’s invoice, though initially inflated above what had been agreed upon as the project cost, could not simply be ignored. The owner was obligated to withhold only that amount which was in dispute, i.e., the amount in excess of the agreed price. It also appears that the owner did not engage the contractor in any conversation about what the owner thought should be the correct amount. When the owner chose not to pay anything, and wait for an appropriate invoice, then the penalties of the Vermont prompt pay act came into play.

The lesson? Ignoring an inflated invoice and not even paying undisputed amounts may result in prompt pay act sanctions, thus enlarging the amount ultimately due.