Payment Disputes

Act 255 of 2026 brings significant changes to the landscape of payment disputes for public construction projects in Louisiana. This new law amends La. R.S. 38:2191 and reshapes how liquidated damages disputes and payment withholding are handled on public works projects. Here’s what contractors and public entities need to know.

What Does the Law Actually Do?

Under prior practice, public entities could withhold contested liquidated damages from progress or final payments, giving them significant leverage over contractors regardless of whether the assessment was justified. Act 255 eliminates that self-help remedy. A public entity is now prohibited from withholding liquidated damages contested by the contractor from any payments otherwise due (with a narrow exception under R.S. 38:2248(C)). Instead, the public entity must pay the contractor and pursue its liquidated damages claim in a separate ordinary court proceeding.

Attorney Fees and Interest: The New Risk Calculus

The Act introduces two-way fee-shifting: the prevailing party in a liquidated damages proceeding is entitled to recover reasonable attorney fees. Both sides now have real skin in the game, which should discourage frivolous positions.

Additionally, if a public entity pays contested liquidated damages and later recovers them in court, it is entitled to interest at one-half percent (0.5%) per day, capped at fifteen percent (15%). That steep rate is a safeguard against bad-faith disputes by contractors looking to delay payment.

No Waiver by Contract

The statute expressly provides that its protections cannot be waived by contract. Any contract clause purporting to allow withholding of contested liquidated damages or to strip mandamus or fee-shifting rights is unenforceable.

Mandamus Proceedings: Updated and Strengthened

When a public entity arbitrarily fails to make progress or final payments, the contractor can seek mandamus compelling payment, plus attorney fees and interest. But fee-shifting works both ways here too: if the public entity prevails, the contractor pays its fees. The Act also makes clear that liquidated damages claims cannot be raised in the mandamus proceeding; they must be pursued separately.

Voided Contracts: Contractors Still Get Paid

Act 255 preserves an existing protection: if a public works contract is voided for violating Louisiana’s Public Bid Law, the contractor is still entitled to payment, including overhead and profit, for work actually performed.

What This Means for You

For contractors: Contest unjustified liquidated damages, get paid, and let the public entity prove its case in court. But beware, the interest and fee-shifting provisions create real exposure if you lose.

For public entities: Document the basis for every liquidated damages assessment thoroughly. You will need to prove your case in an ordinary proceeding, and attorney fees are now at stake.

For counsel: Update your dispute strategies to account for two-way fee-shifting.

Effective Date

Act 255 becomes effective upon signature by the Governor or, if not signed, upon expiration of the time for bills to become law without the Governor’s signature.

Act 255 reflects a broader trend toward protecting contractors from potentially overbearing payment withholding practices by public owners while preserving public entities’ right to recover legitimate liquidated damages through the courts. If you have questions about how this law affects your projects or contracts, contact the Kean Miller Construction Law team today.

Trippe Hawthorne and Patrick Betts are members of Kean Miller’s Construction team, advising owners, contractors, subcontractors, suppliers, and design professionals on complex construction and commercial matters. Their work spans contract negotiation, procurement, licensing, payment disputes, public and private works issues, and high-stakes construction litigation across industrial, commercial, public, and residential projects. Drawing on deep experience in Louisiana construction law and dispute resolution, they provide practical, business-focused counsel to help clients manage risk, navigate evolving legal requirements, and keep projects moving efficiently.