Olmstead Construction, Inc. v. Otter Creek Investments, LLC

IN THE COURT OF APPEALS OF IOWA

No. 18-1186
Filed September 25, 2019

OLMSTEAD CONSTRUCTION, INC.,
Plaintiff-Appellee/Cross-Appellant,

vs.

OTTER CREEK INVESTMENTS, LLC,
Defendant-Appellant/Cross-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Linn County, Kevin McKeever,

Judge.

Olmstead Construction, Inc. and Otter Creek Investments, L.L.C. both

appeal following resolution of their contract dispute. AFFIRMED IN PART AND

REVERSED IN PART ON APPEAL; CONDITIONALLY AFFIRMED ON CROSS-

APPEAL; AND REMANDED.

Dana L. Oxley and Kevin J. Caster of Shuttleworth & Ingersoll, P.L.C.,

Cedar Rapids, for appellant Otter Creek Investments, LLC.

Jeffrey A. Stone and Chad D. Brakhahn of Simmons Perrine Moyer

Bergman PLC, Cedar Rapids, for appellee Olmstead Construction, Inc.

Heard by Doyle, P.J., Blane, S.J.* and Lloyd, S.J.*

*Senior judges assigned by order pursuant to Iowa Code section 602.9206 (2019).
2

DOYLE, Presiding Judge.

The parties to a dispute over a construction contract ask us to review the

district court’s determination of various contract terms that affect the damages,

attorney fees, and interest awarded in a breach-of-contract claim. We must also

determine whether the district court erred by refusing to foreclose on a mechanic’s

lien.

We affirm the judgment entered in favor of Olmstead Construction, Inc.

(Olmstead Construction) on its breach-of-contract claim but reverse the awards of

$48,150 in damages for electrical costs and $47,787.73 in attorney fees. We

conditionally affirm the denial of Olmstead Construction’s petition to foreclose on

its mechanic’s lien and affirm the district court in all other respects. We remand

the case for further proceedings in conformance with this opinion.

I. Background Facts and Proceedings.

Brothers Don and Joe Burd decided to open a convenience store and gas

station in Robins and formed Otter Creek Investments, LLC (Otter Creek) for that

purpose. Otter Creek hired Olmstead Construction to build the store. In May 2014,

the parties entered a cost-plus contract, which requires the owner to pay the

contractor for construction costs plus a percentage markup. Otter Creek agreed

to reimburse Olmstead Construction for its construction costs and pay a seven-

percent markup on those costs. The contract also required Olmstead Construction

to act as the project manager, which entailed obtaining subcontractor bids,

supervising their subcontractor work, and processing and paying subcontractor

invoices. Olmstead Construction would then bill Otter Creek for the subcontractor

costs plus the seven-percent markup on those costs.
3

In July 2014, Olmstead Construction provided Otter Creek an initial estimate

of the total cost of construction, which it projected to be $1,204,774. Construction

began. During 2014, Olmstead Construction billed Otter Creek for work totaling

$81,093.16. Otter Creek paid Olmstead Construction this amount in December

2014.

By the end of the year, Otter Creek realized it needed to scale back the cost

of the project due to financing issues. As a result, it redesigned the construction

plans between December 2014 and May 2015 with Olmstead Construction’s help.

Based on Otter Creek’s changes to the plans, Olmstead Construction submitted a

revised estimate of the total cost of construction on April 5, 2015, which it projected

to be $962,535. Two days later, Olmstead Construction submitted a new estimate,

this time projecting a total cost of $948,132.

One way in which Otter Creek tried to reduce the cost of the project was to

contract directly with some subcontractors, eliminating the seven-percent markup

Olmstead Construction would otherwise receive for that subcontracted work. One

subcontractor Otter Creek opted to contract with directly was Streff Electric, the

electrical subcontractor. The parties agreed that Otter Creek would pay Streff

Electric directly for the portion of the electrical work running to the gas pumps while

Olmstead Construction would oversee the work Streff Electric performed inside the

store. Olmstead Construction’s revised estimates reflect this change.1

Olmstead Construction received invoices from the subcontractors it

supervised, while those contracting directly with Otter Creek submitted invoices to

1
The revised estimates include a line for electrical work but list it as “Electrical (No
electrical at Gas Pumps).”
4

Don Burd. Daniel Olmstead, the owner and president of Olmstead Construction,

testified, “We pay strictly off whatever invoices are sent to us.” So when Olmstead

Construction received invoices from Streff Electric for work on the gas pumps,

Daniel Olmstead assumed Otter Creek was adding that expense back into their

contract despite Otter Creek’s silence on the matter. Because it received the

invoice, Olmstead Construction paid Streff Electric for that work and added the

expense to its invoice to Otter Creek. Unbeknown to Olmstead Construction, Otter

Creek also paid Streff Electric for the electrical work on the gas pumps.

During 2015, Olmstead Construction billed Otter Creek for work totaling

$778,432.84 in 2015. Don Burd noted some items listed as completed in an

October 2015 invoice were for work that had not yet begun and asked for

documentation of the costs. He never received the requested documentation.

When Olmstead Construction sent a new invoice in December without

documentation, Don Burd again asked for documents to verify the costs. Although

Olmstead Construction never provided documentation, Otter Creek paid the total

amount due in December 2015.

In February 2016, Olmstead Construction sent Otter Creek three invoices

listing different amounts owed. An invoice dated February 9 shows a total project

cost of $999,850 and an amount due of $102,930.84. An invoice dated February

12 shows a total project cost of $962,535 and an amount due of $102,928. Another

invoice dated February 12 also shows a total project cost of $962,535 but an

amount due of $35,483.16. When Otter Creek asked about the invoices, Olmstead

Construction stated it had revised the invoices and would invoice for “extras” later.
5

Olmstead Construction sent a final invoice to Otter Creek on March 22,

2016. That invoice shows a total project cost of $1,058,869.82 and an amount due

of $199,343.82. Confused about what the additional charges were for, Don Burd

decided to wait to pay it until Olmstead Construction provided explanation or

documentation of the costs. Olmstead Construction informed Otter Creek that it

would file a mechanic’s lien if Otter Creek failed to pay the invoice within thirty

days. Olmstead Construction filed a mechanic’s lien on April 12, 2016.

In June 2016, Olmstead Construction petitioned to foreclose the mechanic’s

lien for the remaining $199,343.82. Otter Creek counterclaimed for breach of

contract and defective construction. Olmstead Construction amended its petition

to add a claim for breach of contract, seeking prejudgment interest and attorney

fees.

Following a bench trial, the district court found Olmstead Construction

proved its breach-of-contract claim. It entered a $217,121.19 judgment for

Olmstead Construction, which included $48,150 in damages attributable to work

on the gas pumps.2 Although the court found Olmstead Construction proved a

valid mechanic’s lien, it denied the petition to foreclose on it. It also found Otter

Creek failed to prove its counterclaim. After both parties moved the court to

reconsider its ruling, the court reduced the judgment entered against Otter Creek

to $163,395.84, based on an error in its damage calculation.3 The court awarded

Olmstead Construction $47,787.73 in attorney fees and assessed interest from the

2
This figure reflects the amount Olmstead Construction paid to Streff Electric for the work
($45,000) plus Olmstead Construction’s seven-percent markup of that cost ($3150).
3
Otter Creek has since paid Olmstead Construction $115,000 in partial satisfaction of the
judgment.
6

date of judgment. Otter Creek appeals and Olmstead Construction cross-

appeals.4

II. Breach of Contract.

We review breach-of-contract claims for errors at law. See Postell v. Am.

Family Mut. Ins. Co., 823 N.W.2d 35, 41 (Iowa 2012) (stating the court reviews

contract interpretation and construction for errors at law). Under this review, the

district court’s factual findings are binding on us if supported by substantial

evidence. See Metro. Prop. & Cas. Ins. Co. v. Auto-Owners Mut. Ins. Co., 924

N.W.2d 833, 839 (Iowa 2019). That said, the district court’s legal determinations

do not bind us. See Westhoff v. Am. Interins. Exch., 250 N.W.2d 404, 408 (Iowa

1977).

To establish breach of contract, a party must show:

(1) the existence of a contract; (2) the terms and conditions of the
contract; (3) that it has performed all the terms and conditions
required under the contract; (4) the defendant’s breach of the
contract in some particular way; and (5) that plaintiff has suffered
damages as a result of the breach.

Iowa Arboretum, Inc. v. Iowa 4-H Found., 886 N.W.2d 695, 706 (Iowa 2016)

(citation omitted). The parties stipulated to the existence of a contract, and the

district court found that Otter Creek breached the terms of the contract by failing

to provide prompt payment to Olmstead Construction for completion of the

contracted work. On appeal, the parties challenge the district court’s interpretation

4
The table of contents in the parties’ appendix lists trial exhibits but fails to provide
descriptors of the exhibits. Iowa Rule of Appellate Procedure 6.905(4)(c) requires that if
exhibits are included in the appendix “the table of contents shall . . . give a concise
description of [each] exhibit (e.g., ‘warranty deed dated . . . ’; ‘photograph of construction
site’; ‘Last Will and Testament executed on . . . ’).”
7

of various terms of the contract, which affect the amount of damages and the award

of attorney fees.

A. Payment for Electrical Work.

Otter Creek first challenges the portion of the district court’s order awarding

damages to Olmstead Construction to reimburse payments it made to Streff

Electric for the work Streff Electric performed on the gas pumps. The court

determined that the $45,000 Streff Electric billed for this work was “related to

material, labor, or services provided for the purpose of the construction project.”

Because the contract required Otter Creek to pay Olmstead Construction costs

plus seven percent, the court held Olmstead Construction had a right to recover

$48,150 for the this work.

Otter Creek challenges the evidence that Olmstead Construction paid the

$45,000 invoiced by Streff Electric for the work on the gas pumps. In the

alternative, it argues that Olmstead Construction cannot recover payments to Streff

Electric for the work on the gas pumps because this work is not a cost under the

contract.

Assuming Olmstead Construction paid Streff Electric for wiring the gas

pumps, Olmstead Construction cannot recover that amount from Otter Creek

because the work is not a cost of construction under the contract. The contract

states that Olmstead Construction proposes to furnish all labor, materials, and

equipment to complete a list of items.5 One of the items listed is “Electrical.” The

5
Some categories in the list have sub-lists that provide more information on Olmstead
Construction’s responsibilities. For instance, under the category of “General Conditions,”
it states that Olmstead Construction would coordinate all subcontractors on the project.
8

contract provides no further detail on the electrical work. But when asked to

explain his understanding of Olmstead Construction’s obligations under the

contract, Daniel Olmstead testified:

Electrical was all—mainly all we did on—or I guess what I’d say is
the main thing we ever did on this building was the building only.
There was a lot of other work that was completed around this project
that was not included in our contract or in our proposal. So the
electrical included everything that pertained to the building itself,
which would have been the lights, the wiring, everything like that.

Likewise, Don Burd testified:

A. On our initial meeting, we—I laid out the—what I needed him
to perform. And it would be to construct the building, to manage the
construction of the building, managing the subcontractors, obtaining
all the bid work for the different particulars of the job, and submitting
all that and—
Q. Did you discuss whether or not the contract would include
the fueling station, the pumps and so on? A. No. I told him that we
had another contract for that portion of work.
Q. So you discussed it but you told him you had another
contractor? A. Yes, it was going to be the building only.

Olmstead Construction’s July 2014 estimate also reflects that the scope of

its work was limited to construction of the building. The estimate includes a more

detailed list of Olmstead Construction’s responsibilities, listing five categories of

electrical work: (1) building, (2) paging and sound, (3) security system, (4) IP based

CCTV, and (5) network cabling. Under the category of “Items furnished by owner,”

the estimate lists “Fuel tanks and pumping equipment” as item 11. Daniel

Olmstead testified that the work Streff Electric performed on the gas pumps is the

same work that the July 2014 estimate lists as “furnished by owner.”

Daniel Olmstead testified he did not know that Otter Creek contracted

directly with Streff Electric for the work performed on the gas pumps. Don Burd

disputed this claim in the following testimony:
9

Q. Did you at any time tell Olmstead Construction that you
were contracting directly with Streff Electric with respect to the fuel
pumps? A. Yes, I would have. That is not in the scope of Olmstead’s
work that we had discussed.
Q. Did you have conversations at the very beginning of your
relationship with Olmstead Construction about the scope of the work
excluding the fuel pumps? A. Yes, we did.
....
Q. Do you have reason to believe that Olmstead Construction
at all times knew that you had contracted independently and
separately with Streff Electric to provide services to the fuel pumps?
A. Yes.
Q. And is there any reason to think that that changed at any
point in time during the course of the construction? A. No.
Q. Would Olmstead have any reason to believe that they had
suddenly taken off the obligation to provide electrical or any other
construction services related to the fuel pumps? A. No.

The estimates Olmstead Construction provided in April 2015 further show

that the electrical work on the gas pumps was not a cost by stating “(No electrical

at Gas Pumps)” next to the line for the cost of electrical work. Olmstead admitted

that when he prepared the April 2015 estimates, the scope of the contract did not

include electrical wiring to the gas pumps. He also admitted that the final invoice

Olmstead Construction sent to Otter Creek in March 2016 does not purport to

include the electrical work to the gas pumps, instead listing as item 21, “Electrical

(No gas Pumps).”

Daniel Olmstead assumed Otter Creek added the electrical work to the gas

pumps back into the contract based solely on Olmstead Construction’s receipt of

invoices for that work from Streff Electric. He admitted he never received a change

order from Streff Electric for the gas pump work. Olmstead also admitted that no

one told him to add the cost of the electric work to the gas pumps back into the

contract. When asked if it was a mistake for Olmstead Construction to charge or

pay Streff Electric for the invoices on the electrical work performed on the gas
10

pumps, Olmstead testified, “I guess you can look at it any way you want to look at

it. When an invoice comes to our office, the office girl automatically puts that in

our system as a bill against that project. That’s how it got put in here.”6

It is true that an executory contract may be modified by one party with the

consent of the other, even by implied acts and conduct. See Tindell v. Apple Lines,

Inc., 478 N.W.2d 428, 430 (Iowa Ct. App. 1991). But the district court never found

the parties agreed to modify the contract. Rather, the court determined that Otter

Creek was liable for Olmstead Construction’s costs, and the mere fact that

Olmstead Construction received an invoice from Streff Electric qualified that work

as a cost of Olmstead Construction. The record does not support that finding.

Because the cost of the electrical work to the gas pumps is not a cost of the

contract, Olmstead Construction is not entitled to the $48,150 awarded by the

district court for that cost plus the seven-percent markup. Reducing the amount of

the judgment awarded to Olmstead Construction on its breach-of-contract claim by

this amount, we revise the judgment to award Olmstead Construction $115,245.84.

B. Payment for Equipment Costs.

On cross-appeal, Olmstead Construction challenges the court’s refusal to

award reasonable costs for using its own equipment on the project. Based on the

equipment rates provided by the Iowa Department of Transportation (IDOT),

Olmstead Construction seeks an $83,342.34 increase in its award to compensate

6
The three invoices in question were directed “To: Otter Creek Investments” with a
descriptor of “Project: Otter Creek Outpost Pumps.” Otter Creek received and paid these
invoices before Olmstead paid on the same invoices. Although the president of Streff
Electric testified at trial, he gave no explanation as to why the invoices in question were
sent to both Otter Creek and Olmstead Construction. All other invoices Omstead received
from Streff Electric were directed “To: Olmstead Construction” with a descriptor of “Otter
Creek Outpost Station.”
11

it for the cost of using a skid loader, a large forklift, several small tools, a delivery

truck, insulated blankets, and concrete forms that it owns.

Olmstead Construction bought the equipment and used it on several

projects before entering the contract with Otter Creek. Because the equipment is

self-owned, Olmstead Construction cannot produce receipts for the cost of its use

on the Otter Creek project. To calculate the “cost” of using this equipment, it

presented testimony from Matt Olmstead, who has been working in the

construction industry for twenty years and is the current president of Olmstead

Construction. He provided two methods for calculating the reasonable cost of self-

owned equipment. The first method allocates the equipment cost “as part of the

wage rate for the project,” which he testified was $60 per hour. Using this method,

Olmstead Construction invoiced Otter Creek $33,130.98 for use of the equipment.

The second method involves the equipment rate schedules provided by the IDOT,

which Olmstead Construction sometimes use to determine the rates to charge for

use of its own equipment or to rent its equipment to others. Using the IDOT

equipment rate schedules, Matt Olmstead testified that Olmstead Construction

could charge Otter Creek $83,342.34 for use of its equipment.

The district court determined that Olmstead Construction had no right to

compensation for the use of its equipment, noting “the language to the contract

indicated that [Olmstead Construction] would be paid cost plus seven percent.”

Because Olmstead Construction failed to prove “what its cost of providing the

equipment actually was,” the court “conclude[d] that to award damages for the

provided equipment would amount to little more than speculation.” In its expanded

ruling, the court clarified that it “intended to afford [Olmstead Construction] the
12

amount of $0 for the rental equipment simply because [Olmstead Construction]

failed to prove any cost associated therewith. Since the contract was for cost plus

7%, [Olmstead Construction] is entitled to recover $0 for the rental equipment.”

Olmstead Construction argues the court erred by declining to award

damages for its use of self-owned equipment because the cost was too

speculative. It claims that Iowa has recognized that the cost of self-owned

equipment is reimbursable under cost-plus contracts, citing our opinion in

Constructive Consultants, Inc. v. Banwart, No. 12-1011, 2013 WL 988637, at *4

n.2 (Iowa Ct. App. Mar. 13, 2013). There, we quoted the following treatise

language:

It is important to carefully define which construction costs incurred by
the contractor are to be reimbursed. It is typical to provide
reimbursement for wages paid for labor and taxes; benefits;
insurance costs based on those wages; rented equipment;
subcontract costs; insurance costs; bonding costs; building permit
costs; costs of contractor-owned equipment (which can be
controversial to determine); and costs of material.

Constructive Consultants, 2013 WL 988637, at *4 n.2 (emphasis added) (quoting

Philip L. Bruner & Patrick J. O’Connor, Jr., 2 Bruner & O’Connor on Construction

Law § 6:81). The same treatise notes that computing the cost of self-owned

equipment “is extraordinarily complex and poses difficult cost accounting problems

that few beyond experienced construction cost accountants and equipment

dealers truly understand.” 6 Bruner & O’Connor on Construction Law § 19:104,

Westlaw (database updated June 2018) (footnotes omitted). However, the method

used to calculate charges for contractor-owned equipment is less important than

the parties’ agreement as to the method. See Stephen A. Hess, Construction

Contract Pricing, Construction Briefings No. 2008-7 (July 2008). For this reason,
13

the “traditional and accepted method” for determining actual costs of contractor-

owned equipment is to include with the contract a schedule of the rates the

contractor is entitled to bill for use of its own equipment. See id. “In the absence

of such a schedule, the attribution of ‘cost’ to contractor-owner equipment can be

a contentious and frustrating process for both parties.” Id. Other ways to

determine actual costs of contractor-owned equipment is by using equipment rate

manuals and expert testimony if there is an “absence of accurate and complete

accounting records from which actual costs may be determined.” 6 Bruner &

O’Connor on Construction Law § 19:104.

Olmstead Construction claims that it can recover the reasonable charge for

renting its equipment in the area, citing Olberding Construction Co., Inc. v. Ruden,

243 N.W.2d 872, 877 (Iowa 1976). But that case involved an implied contract, not

a cost-plus contract. Olberding Constr., 243 N.W.2d at 875 (“There is no claim

that an express contract existed as to the amount of compensation to be paid.”).

The supreme court noted that “where there is no agreement as to the amount of

compensation, the law implies a promise to pay reasonable compensation.” Id.

Because another contractor who was knowledgeable with the amount charged for

rental equipment in the area testified that the contractor’s charges for rental

equipment were reasonable, the court found substantial evidence to support the

contractor’s bill. See id. at 877.

The district court noted that Olmstead Construction “provided evidence that

the equipment charges would have been reasonable” but failed to show the actual

cost of the equipment’s use. In other words, although it may have been reasonable

for Olmstead Construction to charge an owner for the use of its equipment based
14

on either of the two calculations it provided at trial, there was no evidence that

either figure related to the actual cost of using the equipment.

We agree that the IDOT rate schedules do not reflect the actual cost of

using Olmstead Construction’s equipment. Matt Olmstead testified that the IDOT’s

rate schedules provided an appropriate hourly rental rate to charge for construction

equipment, not a rate for equipment that one owned. And the rates relate to

highway construction rather than building construction. We also note that

Olmstead Construction did not use this schedule when it initially billed Otter Creek

for the use of its equipment. Using the IDOT rate schedules results in a charge

more than $50,000 higher than the amount Olmstead Construction invoiced to

Otter Creek. There is insufficient evidence to justify use of the IDOT rate schedules

to calculate the cost of the equipment use.

The evidence regarding the so-called labor rate charged by Olmstead

Construction is unavailing. Olmstead Construction provided two exhibits to

illustrate its calculations for labor. An exhibit titled “Otter Creek Outpost Employee

Breakdown” lists each laborer who worked on the project, the number of hours

each worked, and the “raw cost” of employing each laborer based on the salary,

benefits, and taxes Olmstead Construction paid. Next to the “raw cost” column is

a column titled “other expenses,” which Daniel Olmstead testified represents the

hourly cost7 for the use of its equipment by each laborer. A column combining

“raw cost” and “other expenses” shows a final hourly rate for each laborer,8

7
The hourly cost for the equipment used by each laborer, whether it was small tools or a
skid loader, ranges from $7.36 to $8.92 per hour.
8
This figure ranges from $51.94 to $62.89 per hour.
15

followed by a column showing the total project cost for each by multiplying that

final hourly rate by the number of hours worked. Adding these amounts together,

the exhibit shows a total cost of $233,640, the same amount Olmstead

Construction shows as the total cost of labor for the project in its final invoice.

An exhibit titled “Billing Itemization” also shows the final labor cost of

$233,640 based on a labor rate of $60 per hour, with labor expenses itemized:

Union Wages, Benefits,
Insurance, Medicare &
Unemployment Taxes $ 200,509.02
Skid Loader $ 13,580.00
Large fork lift $ 10,000.00
Large truck $ 2,000.00
Small Tools $ 3,000.98
Insulated Blankets $ 550.00
Concrete forms $ 4,000.00
3,894 Man hours @ 60.00/HR $ 233,640.00

To justify its labor rate, Daniel Olmstead testified that the $60 per hour

charge for labor is “very reasonable” in his experience. Matt Olmstead testified

that Olmstead Construction uses a similar rate on about 80% of contracts involving

reimbursable costs. When asked about the “other expenses” column listing

equipment charges by laborer in the exhibit showing a breakdown of expenses by

employee, Daniel Olmstead testified:

What we end up doing—we do a lot of projects with a labor rate.
Factories, other jobs we’ve done before, they want you to include
everything. They don’t want you to itemize out you’re using the skid
loader for two hours, you’re using this for whatever amount of
hours. This is included in our labor rate. We give somebody a labor
rate, that’s the labor rate. It includes the equipment.

However, nothing in the record indicates how Olmstead Construction calculated

the hourly labor rate.
16

Because Olmstead Construction failed to prove the actual costs associated

with use of its equipment, we affirm on this issue.

C. Attorney Fees.

The parties’ contract states that

any credit granted shall be paid promptly, in accordance with terms
and agreements (net 30 days), that the credit grantor may add one
and one half percent (1 1/2%) per month (18% per annum) to any
balance owed over 30 days, and in event of default, to pay
reasonable collection charges and/or attorney fees.

After the district court entered judgment in its favor on its breach-of-contract claim,

Olmstead Construction asked the district court to award it $94,575.45 in attorney

fees. The district court found it was reasonable to award Olmstead Construction

$47,787.73 in attorney fees, one-half the amount requested.

On appeal, Otter Creek does not dispute that the contract allows recovery

of attorney fees in the event of default. Nor does it dispute the reasonableness of

Olmstead Construction’s attorney fees. Instead, Otter Creek contends that

Olmstead Construction is not entitled to an award of attorney fees because

Olmstead Construction failed to perform under the implied terms of the contract.

Otter Creek argues that the contract required Olmstead Construction to

substantiate its costs as a condition precedent to payment and so Olmstead

Construction’s failure to do so excused Otter Creek from paying the final invoice.

On this basis, Otter Creek claims it did not default under the contract and Olmstead

Construction is not entitled to an award of its attorney fees.

The district court rejected Otter Creek’s claim that the implied terms of the

contract required Olmstead Construction to provide it with an accounting of the

costs it was charging. The court determined:
17

Element 3 requires that [Olmstead Construction] fulfill all of
the terms of the contract. [Olmstead Construction] argues that [it]
has completed the terms of the contract and therefore satisfied
element 3 of [its] breach of contract claim. [Otter Creek] claims that
[Olmstead Construction] has not satisfied element 3. [Otter Creek]
argues that [it] requested to know the specific items that constituted
the costs that were being claimed. [It] further argues that [Olmstead
Construction] failed to provide [it] with such costs and that such
failure constitutes a material breach of the contract. [Olmstead
Construction] argues that [it] provided all services required under the
agreement in accordance with industry standards and completed
construction of the project on February 26, 2016. The Court agrees
with [Olmstead Construction]. The Court finds that the overwhelming
evidence shows that [Olmstead Construction] was required to
complete certain construction tasks that were part of the overall
project. The Court further finds that [Olmstead Construction]
completed each and every task according to the agreement and in
accordance with industry standards. Therefore, the Court finds that
[Olmstead Construction] has proven element 3.

Otter Creek argues that Daniel Olmstead’s testimony supports its claim that

the implied terms of the contract required Olmstead Construction to confirm its

costs. On cross-examination, he testified:

Q. At the time that you signed this contract, May 14, 2014,
was Olmstead Construction willing to show documentation to support
the costs that it would incur? A. Yes.
Q. And would that documentation include invoices that you
paid from your sub and suppliers as well as evidence of what you
paid your employees? A. Yes.
Q. So do you agree that this contract at least assumed that
you would supply that documentation? A. Yes.
Q. And that gives your customer protection from a contractor
that might try to overcharge them for things that were not actually
incurred? A. That is correct.
Q. And it’s fair for a customer to ask to see those records to
find out whether or not they are being overcharged? A. Yes.

The evidence also suggests that Olmstead Construction’s common practice was

to include documentation of its costs with every invoice.

But Olmstead Construction never provided Otter Creek with the requested

documentation of its costs. Don Burd testified that Olmstead Construction did not
18

provide documentation of its costs until “way after the lawsuit was filed” and did

not document its labor costs or equipment rental costs until a month before trial.

Don Burd testified that he “didn’t really understand” the change in final cost listed

in the February 2016 and March 2016 invoices because he did not know what extra

costs Olmstead Construction was billing and it provided no documentation of these

costs. He also testified that when he learned that the total price of the contract

had risen nearly $200,000 from the last estimate, it stunned him and he “had no

idea that the costs were getting this out of whack.” Don Burd explained why he

did not pay the final invoice, testifying:

I was trying to decipher what the costs were. I
didn’t . . . understand what the extra costs were for which items, and
things had gotten mixed up here and there was no explanation, and
I had never received any explanation or invoices documenting the
cost through the whole project. So . . . until I figured this out of what
the costs were for, the extras from the original 962,535, . . . I didn’t
know really how to go about figuring this out. I was trying to figure it
out.
Q. What happened next? A. Let’s see. I believe Jenny [works
in office at Olmstead Construction] sent an email that she included
with this that if I had any questions to contact her or Dan [owner of
Olmstead Construction].
Q. What happened after that? A. . . . I was reviewing it so I
sent her back an email that said I would be reviewing this and I’d get
back with her.
Q. Okay. What happened next? A. I believe she sent me an
email that indicated that Dan was going to file a mechanic’s lien on
April 21st, I believe.
Q. I’ve put on the overhead what was attached to the
amended petition as Exhibit 1, and the Court can find that in the court
records. It looks like this mechanic’s lien was posted on April 12th,
2016. Does that comport with your recollection? A. Yeah, that looks
like it.
Q. What happened next? A. I was trying to figure out how to
go about getting these costs for these items on these invoices. I
hadn’t received any supplement cost or anything on the entire
project. The invoices were now no longer in the same categories as
the original documentation so it made it impossible for me to track
where my costs were, whether on the original one, whether concrete
19

was . . . what we agreed upon or whether it was less or whether it
was more, I didn’t know, high or low, . . . or what had gotten deleted.
There was no accounting of it.

Although the court rejected Otter Creek’s claim that Olmstead Construction

had to provide documentation of its costs, its ruling notes the problem with

Olmstead Construction’s billing practices:

One of the major problems to [Olmstead Construction] being paid in
accordance with the invoices has been [Olmstead Construction]’s
seeming inability to provide accurate invoices to [Otter Creek] in a
timely manner. At trial, [Olmstead Construction] has been able to
prove [its] expenses. However, there has been considerable
confusion regarding the invoices. Although communication
problems can rarely be attributed to one party, the confusion in the
instant case has overwhelmingly been due to the fault of [Olmstead
Construction]. Olmstead [Construction] submitted its first “final
invoice” to Otter Creek on or around February 9, 2016. This invoice
was withdrawn and revised. Olmstead [Construction] submitted its
second final invoice on February 12, 2016 (Exhibit 19). The e-mail
communication submitted with this invoice reflects that Don Burd
wanted all extras accounted for at the time of final payment. After
revising the final invoice a second time, another invoice dated March
1, 2016 was submitted (Exhibit 20). The total amount Olmstead
[Construction] alleged due on this invoice was $199,343.82. Don
Burd received this invoice Tuesday, March 22, via e-mail (Exhibit M).
At trial, [Olmstead Construction] claimed that the total amount owed
by [Otter Creek] was $252,572.14. It is no mystery that [Otter Creek]
was concerned about the accuracy of [Olmstead Construction]’s
billing practices given this level of confusion.

This observation highlights the problem with awarding Olmstead Construction

attorney fees. Is it fair to require Otter Creek to pay the final invoice without any

documentation as to the costs listed? Did Otter Creek’s desire to have an

accounting of those costs before paying cause it to default on the contract? And

if so, should it be required to pay Olmstead Construction’s attorney fees when

proper documentation could have revealed any errors in in the bill (such as the
20

double payment made to Streff Electric) and the parties could have addressed it

without resorting to legal action?

No Iowa case has addressed whether a cost-plus contract requires the

contractor to justify the expenses billed on a project. However, a cost-plus

contract, by nature, demands that the contractor maintain accurate and detailed

expense records. See, e.g., Joe Bonura, Inc. v. Hiern, 419 So. 2d 25, 29 (La. Ct.

App. 1982) (requiring a contractor to “itemize each and every expenditure made”);

Shaw v. Bula Cannon Shops, 38 So. 2d 916, 918 (Miss. 1949) (stating contractor

who agrees to perform on a cost-plus basis has a “duty to keep accurate and

correct accounts of all material used and labor performed”); Hitt v. Smallwood, 133

S.E. 503, 506 (Va. 1926) (same); 17A Am. Jur. 2d Contracts § 484 (“Under a cost-

plus contract, a contractor has the duty of itemizing expenditures made by him or

her on the job . . . .”); Albert Hamilton Dib, 1 Forms and Agreements for Architects,

Engineers and Contractors § 8:4, Westlaw FA-ARCHTCT (database updated June

2019) (“The cost-plus contractor is obliged to keep a detailed and accurate record

for audit purposes.”); Benjamin F. Sturgeon, Fiduciary Duties in Cost-Plus

Contracts for Construction, 34 Construction Law. 24, 28 (Winter 2014)

(“Contractors are held to an implied covenant of good faith and fair dealing and

must keep clear and accurate records that account for all of the supplies and labor

expended in each project.”); Paul J. Walstad, Sr. & Camille Williams, Contracting

on a Cost-Plus Basis: The Owner’s Relationship of Trust with the Contractor,

Construction Briefings No. 2000-12 (Dec. 2000) (noting most cases “impose upon

the contractor the obligation to keep accurate and detailed records of its

expenditures”). Contractors who fail to keep “meticulous cost records” may find
21

their expenses are not reimbursable. Walstad & Williams, supra. Likewise, costs

based on estimates or approximations of expenses are insufficient. See id.; see

also Arc Elec. Co. v. Esslinger-Lefler, Inc., 591 P.2d 989, 992 (Ariz. Ct. App. 1979)

(“The meaning of ‘costs’ is plain and definite in the sense that it denotes actual as

opposed to average costs. The party performing under a cost-plus contract must

keep a record of who worked on a given job and of his hourly wage.

Approximations and averages are insufficient.”); Freeman & Co. v. Bolt, 968 P.2d

247, 254 (Idaho Ct. App. 1998) (same). Rather, a contractor may only recover the

costs actually incurred. See Shaw, 38 So. 2d at 918 (requiring that a contractor

show the claimed expenditures “were necessarily paid for materials and work upon

the job” to recover). Therefore, a contractor may be required to present invoices

and statements of accounts accompanied by proof of payment. See M. Carbine

Restoration, Ltd. v. Sutherlin, 544 So. 2d 455, 458–59 (La. Ct. App. 1989), writ

denied, 547 So. 2d 355 (La. 1989); 17A Am. Jur. 2d Contracts § 484.

Keeping detailed records allows the owner to check on the contractor’s

expenditures. See Shaw, 38 So. 2d at 918; William Garth Snider, Defamation

Claims in Construction Litigation, Construction Briefings No. 2000-7 (July 2000)

(noting an owner can always challenge the reasonableness of costs incurred).

Therefore, any contract requiring an owner to reimburse a contractor’s costs

implicitly allows the owner to approve the contractor’s accounting system and audit

contract costs and pricing data. See 1 Bruner & O’Connor on Construction Law

§ 2:26; see also Dib, 1 Forms and Agreements for Architects, Engineers and

Contractors § 8:4 (“An owner who lets out a cost-plus job normally requires the

contractor to use owner’s approved accounting system or ‘chart of accounts,’ so
22

that contractor’s records may be readily audited.”). And if the owner disputes the

billing, the burden is on the contractor to prove “each and every item of expense.”

Joe Bonura, Inc., 419 So. 2d at 29; see also 17A Am. Jur. 2d Contracts § 484.

In Sherwood Distilling Co. v. Ryan, 190 F.2d 314, 321 (Emer. Ct. App.

1951), a government contractor asked the court to review the Department of

Commerce’s orders and regulations governing its cost-plus contract for the

production of ethyl alcohol. In rejecting the contractor’s argument about the

department’s audits of its costs, the court noted that such audits were “obviously

necessary” if the department was to pay based on the contractor’s own statement

of cost. Sherwood Distilling, 190 F.2d at 319. The court observed “that it is the

duty of a contractor under a contract on a cost-plus basis to keep adequate records

to justify the actual costs reported and further to keep the usual documents to

substantiate its claims for reimbursement.” Id. at 321. The court then noted the

contractor’s failure to keep such documents “is the cause of much of the

controversy in this case.” Id. The same is true here. Had Olmstead Construction

provided the explanation of costs Otter Creek requested, it would have eliminated

much of the confusion regarding the Streff Electric invoices and, perhaps, the

litigation in its entirety.

Otter Creek was not required to make final payment until Olmstead

Construction provided the requested documentation of its costs. Because Otter

Creek did not default under the agreement, Olmstead Construction is not entitled

to an award of its attorney fees under the contract, and we reverse the award of

$47,787.73 in attorney fees.
23

D. Prejudgment Interest.

Olmstead Construction contends it is entitled to prejudgment interest on its

contract damages. It argues that interest should begin when damages are

complete—here, thirty days after it issued the final invoice. In the alternative, it

requested interest begin to run on the day it filed the action.

Generally, interest on unliquidated damages becomes due and payable on

the date of judgment. See Brenton Nat’l Bank of Des Moines v. Ross, 492 N.W.2d

441, 443 (Iowa Ct. App. 1992). An exception occurs when damages are complete

at a specific time, in which case interest runs from that time. See id. That

exception is inapplicable, however, when a genuine dispute exists between the

parties as to the amount of damages. See id; 13 Am. Jur. 2d Building and

Construction Contracts § 88 (“[P]rejudgment interest will not be allowed on such

claims . . . where a serious and substantial controversy exists as to the amount

due under the contract.”).

The district court determined that interest did not become recoverable until

it entered final judgment because “damages were not complete at any specified

time before the trial” and “the amount remained in controversy until the Court

issued its final judgment.” Under these circumstances, prejudgment interest is

inappropriate. We therefore affirm on this issue.

III. Mechanic’s Lien.

Olmstead Construction also appeals the denial of its petition to enforce the

mechanic’s lien. It contends it met all the statutory requirements for foreclosure

and it is therefore entitled to foreclose on the lien. We review actions to enforce a

mechanic’s liens de novo. See Flynn Builders, L.C. v. Lande, 814 N.W.2d 542,
24

545 (Iowa 2012). On de novo review, we give weight to the district court’s factual

findings although they are not binding. See id.

In denying Olmstead Construction’s petition to enforce its mechanic’s lien,

the district court again observed that Olmstead Construction’s billing led to a

genuine dispute over how much Otter Creek owed it. Rather than clarifying its

invoice to Otter Creek, Olmstead Construction filed a mechanic’s lien and initiated

proceedings to foreclose on the lien. The court determined that “nothing in the

statute . . . requires that the parties reach an agreement regarding the amount of

money in dispute prior to filing a mechanic’s lien.” However, it denied Olmstead

Construction’s petition on equitable principles, concluding that “a plaintiff should

not be permitted to invoice a defendant for an unsubstantiated amount of money

and then subsequently foreclose on the defendant’s property without providing the

defendant with proof that the amount invoiced is actually valid.” In denying

Olmstead Construction’s motion to reconsider on this issue, the court reiterated its

conclusion, stating, “[Olmstead Construction] is largely responsible for creating this

dispute due to their confusing and inaccurate billing. [Olmstead Construction]

proposes foreclosure on the mechanic’s lien. If the Court granted such

foreclosure, it would amount to an extremely inequitable solution to a problem that

is largely of [Olmstead Construction]’s own making.”

Our mechanic’s lien statute allows one who contracts with a landowner and

furnishes material or performs labor to improve the land to place a lien on that land

to secure payment. Iowa Code § 572.2 (2016). To perfect the lien, one must post

a verified statement of account to the mechanics’ notice and lien registry within two

years and ninety days of the date on which material was last furnished or labor
25

was last performed. Id. §§ 572.8, .9. Once the mechanic’s lien is perfected, a

party may initiate an action to enforce it. Id. § 572.24.

The purpose of a mechanic’s lien

is to protect persons who have supplied labor or material for the
improvement of real property by giving the lienholder security
independent of their contractual remedies against the owner of the
land. The principle underlying the mechanic’s lien statute is that a
party who materially increases the value of the owner’s property is
entitled to look to the improved property as security for the effort.

Winger Contracting Co. v. Cargill, Inc., 926 N.W.2d 526, 535 (Iowa 2019) (cleaned

up) (citing Roger W. Stone, Mechanic’s Liens in Iowa, 30 Drake L. Rev. 39, 41

(1980)). We liberally construe the mechanic’s lien statute “with a view to promote

its objects and assist the parties in obtaining justice.” Iowa Code § 4.2. We also

allow set-offs and counterclaims “to permit complete determination of the rights of

the parties arising from a single transaction in the same action.” Capitol City

Drywall Corp. v. C. G. Smith Const. Co., 270 N.W.2d 608, 611 (Iowa 1978).

Olmstead Construction has met the statutory requirements to foreclose on

its mechanic’s lien. However, we have flexibility in determining an equitable

remedy. See Hosteng Concrete & Gravel, Inc. v. Tullar, 524 N.W.2d 445, 448

(Iowa Ct. App. 1994). “In questions of equity, the court has broad discretion to

consider the hardship its orders would cause the defendant. Under the relative

hardship doctrine, a court of equity should not grant an award that would be

disproportionate in its harm to the defendant and its assistance to the plaintiff.”

27A Am. Jur. 2d Equity § 102.

The record shows Otter Creek has paid $115,000 in satisfaction of

judgment. Because we reduced the amount of the judgment entered in Olmstead
26

Construction’s favor to $115,245.84, foreclosing on the mechanic’s lien would

disproportionately harm Otter Creek by forcing it to sell property that cost in excess

of $1,000,000 in satisfaction of a $245.84 judgment. Noting that the delay in Otter

Creek’s payment is due largely to Olmstead Construction’s billing practices, we

grant Otter Creek thirty days from the date we file this opinion to satisfy the

remaining judgment due of $245.84. If Otter Creek satisfies the judgment in this

time, there is nothing owed on the contract, and Olmstead Construction is not

entitled to foreclose on the mechanic’s lien. See Bidwell v. Midwest Solariums,

Inc., 543 N.W.2d 293, 297 (Iowa Ct. App. 1995) (holding that when owner’s

damages exceeded that of the contractor such that the contractor is “in a negative

position,” “[i]t goes without saying” that the contractor is not entitled to foreclose on

its mechanic’s lien). If Otter Creek fails to satisfy the judgment in full within thirty

days, the court shall grant Olmstead Construction’s petition to foreclose on the

mechanic’s lien.

IV. Conclusion.

We affirm the entry of judgment in favor of Olmstead Construction but

reverse the award of $48,150 in damages and $47,787.73 in attorney fees to

Olmstead Construction. We conditionally affirm the denial of Olmstead

Construction’s petition to foreclose on its mechanic’s lien, and we affirm the district

court in all other respects. Finally, we remand the case for further proceedings in

conformance with this opinion. Costs of the appeal are taxed to Olmstead

Construction.

AFFIRMED IN PART AND REVERSED IN PART ON APPEAL;

CONDITIONALLY AFFIRMED ON CROSS-APPEAL; AND REMANDED.