The Colorado Supreme Court on Monday restored a $5.7 million award to a company that helped build a commuter rail line and, in doing so, rejected a view of state law that would nullify a subcontractor’s entitlement to any compensation if they knowingly try to recover more than they are owed.

Justice Richard L. Gabriel wrote in the April 6 opinion that the Court of Appeals’ restrictive interpretation of the law did not mesh with the legislature’s goal of deterring only bad-faith claims of non-payment.

Colorado’s Public Works Act “was enacted to protect suppliers of labor and materials for public works projects by providing them with statutory remedies for amounts due and unpaid,” he wrote. Under the Court of Appeals view, “claimants would likely be deterred from exercising their statutory remedies at all, lest they risk losing all avenues for being made whole.”

In the underlying case, Ralph L. Wadsworth Construction Company became a subcontractor on the construction of the Regional Transportation District’s N Line to Thornton. Regional Rail Partners was the overarching contractor. The project encountered delays and defects, with both entities pointing the finger at each other.

RLW filed a verified claim under the Public Works Act, alleging that Regional Rail Partners owed it more than $12.7 million. In broad terms, the law ensures subcontractors’ financial security on public projects. If a subcontractor provides “labor, materials, sustenance, or other supplies” and the contractor has not paid, the subcontractor files a verified statement of the amount due to initiate the reimbursement process.

In 2003, the legislature added a condition to the act. If a subcontractor’s claim is not reasonably related to the amount owed and the subcontractor knows it, the subcontractor “shall forfeit all rights to the amount claimed.” For 20 years, the Court of Appeals had never addressed what that condition meant.

After a trial judge awarded RLW $3.8 million in damages and $1.9 million in unpaid funds — totaling $5.7 million — a three-judge Court of Appeals panel wiped away the entire amount.

The panel determined RLW had relied on “impacts, delays, disruptions, interference and other problems associated with the Project” as grounds for its complaint. But Judge Ted C. Tow III reiterated the purpose of the Public Works Act is for subcontractors to file claims over services “actually provided” — not for financial damages stemming from disputed delays.

Because RLW asserted it was owed an amount that was not reasonable under the Public Works Act, the panel decided the 2003 condition, as written, meant RLW had forfeited its right to seek compensation.

“In our view, the language,” wrote Tow, “is unambiguous: the claimant forfeits the right to pursue any remedy for that amount. While this sanction may seem drastic, it is the only reasonable reading the statutory language can bear.”

But during oral arguments to the Supreme Court, some justices suggested that lawmakers never intended for subcontractors to permanently lose out on money owed to them if they overreach or misperceive the relevant damages.

That is “a Draconian remedy. They lose all rights to everything? Including the rights to the $5 million the court actually awarded?” Gabriel asked. “That’s a fairly extreme forfeiture to me.”

Trade associations representing general contractors and subcontractors weighed in to the Supreme Court to warn about the effects of the Court of Appeals’ decision. If companies risk forfeiting all their rights to money owed when they request the wrong amount, the groups argued that contractors will stop working on public construction projects until they can iron out payment disputes.

“If everybody agrees as to what we’re doing, there wouldn’t be any need to file a claim, right?” pointed out Justice Maria E. Berkenkotter.

In its decision, the Supreme Court clarified that RLW properly included disputed amounts in its original claim, as they related to labor, materials, sustenance, rental machinery, tools, or other permissible costs.

“That a claimed amount is greater than the amount due is not alone sufficient to establish that the claim is excessive,” Gabriel wrote. “For example, a subcontractor could file a claim for an amount ultimately determined not to be due, but if the subcontractor did not know that the amount claimed was greater than what was due at the time it filed its verified statement of claim, then the claim would not be excessive.”

He added that costs incurred due to delay or disruption may be included in the subcontractor’s claim, so long as they fall within the permissible categories in the law. Because the trial judge found RLW’s claimed amount was reasonable, and the damages awarded ultimately fell in the proper categories, the Supreme Court concluded the Court of Appeals was wrong to deem RLW’s claim excessive.

As for the penalty for subcontractors who claim they are owed an unreasonably excessive amount, the Supreme Court held that the legislature intended only for companies to forfeit their rights under the Public Works Act. They may still seek monetary damages through other legal avenues and not, as the Court of Appeals believed, lose out on payments owed forever.

“Under such a construction, claimants will properly be deterred from filing excessive claims,” wrote Gabriel, “but without the fear of losing all opportunity for recovery based on what might turn out to be the erroneous exercise of their statutory rights and remedies.”

The case is Ralph L. Wadsworth Construction Company, LLC. v. Regional Rail Partners et al.