What Is the Missouri Prompt Payment Act?

May 22 2024      On Behalf of  David M. Duree & Associates, P.C.      Blog

The construction industry depends on a high degree of trust and understanding among all parties involved. One of the most crucial elements of a successful public works project is the timely payment of all contractors and others involved. Punctual payment keeps everyone motivated to complete a project to the highest standard possible. Missouri has laws in place to protect and promote this practice. Here is what you need to know about the Missouri Prompt Payment Act and how it can benefit you.

What Does the Missouri Prompt Payment Act Require?

The Missouri Prompt Payment Act is designed to ensure that contractors, subcontractors, suppliers, and other professionals involved in public works construction projects receive timely payment for their services. The Act mandates that payments be made by specific deadlines outlined in the legislation. If a party fails to meet these payment deadlines without justification, they are subject to penalty interest at a rate of 1.5 percent per month, calculated from the expiration of the payment deadline until the amount is paid in full.

Simple vs. Compound Interest: A Clarification

While the Missouri Prompt Payment Act clearly establishes the penalty interest rate for late payments, it does not specify whether this interest should be calculated as simple or compound interest. Simple interest is calculated solely on the principal amount, while compound interest, often referred to as “interest upon interest,” adds accrued interest to the principal sum each period, using the enhanced sum as the basis for calculating interest in the next period. Compound interest can escalate rapidly, potentially leading to significant financial consequences for late payers.

Recent Court Ruling Provides Clarity

Until recently, Missouri courts had not definitively addressed whether the Prompt Payment Act’s penalty interest should be calculated as simple or compound interest. However, on November 8, 2022, the Missouri Court of Appeals for the Eastern District provided much-needed clarity in the case of Penzel Construction Company, Inc. v. Jackson R-2 School District.

The Missouri Court of Appeals directly addressed this question and held that the interest specified in the Prompt Payment Act is simple interest. The Court noted that the statute itself is silent on the issue and refused to read into the Act a compound interest provision that the legislature had not explicitly included. The Court also emphasized that the simple interest rate of 1.5 percent per month (18 percent per year) is significantly higher than annual interest rates found in other Missouri statutes, serving the Act’s purpose of penalizing late payments.

Contact an Experienced Missouri Construction Law Attorney Today

While the Missouri Prompt Payment Act is designed to promote the timely payment of public works professionals, late payments still occur all the time. Not receiving the money you have earned on time can be a significant source of disruption in every area of your life. 

An experienced St. Louis construction law attorney at David M. Duree & Associates, P.C. can help you obtain the payment you are owed, as well as any interest that has accrued during the lapsed period. With over 40 years of experience, we have what it takes to help set things right for you. Call us today at (618) 628-0186 or contact us online for an initial consultation.