Reed Smith Client Alerts

The Pennsylvania Contractor and Subcontractor Prompt Payment Act was enacted to “level the playing field” for contractors and subcontractors who have not been timely paid by allowing for the recovery of statutory penalties, interest and attorneys’ fees in court or arbitration where payments have been withheld in bad faith. These latest amendments provide additional leverage for unpaid contractors and subcontractors by requiring prompt notice of withholdings, requiring timely release of retainage and by prohibiting contractual waivers of statutory rights.

Autores: James M. Doerfler Peter M. McCall

On October 10, 2018, a set of amendments to Pennsylvania’s Contractor and Subcontractor Prompt Payment Act (CASPA), 73 P.S. §§ 501 et seq. took effect. These amendments were designed to afford contractors and subcontractors additional rights and remedies in the event of nonpayment. The principal changes effected by these amendments are as follows:

  • Non-waiver of statutory protections: Prior to these amendments, there had been some debate about whether parties could contractually waive the statute’s protections. Section 503(e) now resolves that debate by prohibiting parties to a contract from contractually agreeing to waive CASPA’s protections.
  • Suspension of performance: The amendments also expressly authorize contractors and subcontractors to suspend performance in the event of nonpayment, following the provision of required notice. Under Section 505(e), if payment is not timely received, “the contractor shall have the right to suspend performance of any work, without penalty, until payment is received according to the terms of the construction contract.” As a practical matter, however, this right to suspend performance does not arise for over two months. Payment on an invoice needs to be late, a 30-day written notice of late payment must be given, followed by an additional 10-day written notice of intent to suspend performance sent by certified mail. Subcontractors have a similar right to suspend performance at Section 507(e) of the Act, with similar notice requirements to the prime contractor.
  • Payment withholding: Under the new amendments at Section 506(b), any amounts withheld by owners from contractor payment applications must be reasonable. Owners must provide a written explanation of the good faith basis for withholdings within 14 days after receiving an invoice, or risk waiving the ability to make the withholding. Further, the statute now expressly requires the owner to make payment for other items in the invoice not affected by a deficiency. Parallel provisions for subcontractor withholdings were also enacted.
  • Invoicing errors: The amendments also clarify the process for dealing with an invoice that contains an error. The person receiving an incorrect or incomplete invoice now has an express obligation to advise the sender of the errors within 10 days of receipt. Once written notice has been received, the correct amount must be paid on the due date.
  • Payment of retainage: Retainage must be paid within 30 days of final acceptance of the work. Under a separate provision, a contractor or subcontractor can facilitate the release of retainage earlier, at substantial completion, if it posts a maintenance bond for 120 percent of the retainage being held.

Given the changes effected by these amendments, owners and contractors would be well advised to review their existing contracts to ensure they are compliant with these new provisions, and to review their existing payment application procedures. For example, owners will need to be vigilant about taking prompt action on payment applications to ensure that they are not inadvertently waiving their rights to withhold payment for deficiencies. Similarly, contractors who want to ensure prompt payment need to be cognizant of the obligation to provide timely written notice to qualify for the new protections under these amendments. If clients have any questions regarding the new amendments or would like assistance in reviewing their existing contracts or procedures for compliance, please feel free to contact one of our Pennsylvania construction team: Jim Doerfler, Peter McCall or Tarek Abdalla.


IMPORTANT REMINDER

Last fall, we provided a series of client alerts on the 2017 updates to the industry-standard American Institute of Architects (AIA) architectural and construction contract templates. To the extent clients have not already updated and are still using the 2007 templates, please be aware that those 2007 edition templates are set to expire on October 31, 2018. Links to our client alerts on those AIA document updates are included for our clients’ convenience:

A Summary of the Relevant Changes to the Owner-Contractor Forms
A Summary of the Relevant Changes to the Owner-Architect Forms

Client Alert 2018-210