In 1994, the Pennsylvania legislature passed the Contractor and Subcontractor Payment Act (CASPA) with the intent to offer protections to contractors and subcontractors against payment delays in connection with construction projects. However, despite CASPA’s protective nature, many believe that CASPA lacks the enforcement tools to fully protect parties from whom payments are being withheld. On May 18, 2017, a group of legislators led by Rep. David S. Maloney from Berks County, introduced House Bill 1387 (HB 1387) to add additional protections to CASPA. Specifically, HB 1387 seeks to add the following provisions:
- A contractor or subcontractor may not contractually waive CASPA rights.
- Parties must provide written notice of a deficiency item within seven (7) calendar days upon receipt of an invoice, or risk waiving the right to withhold payment for the deficiency, thereby requiring payment of the invoice in full.
- If withholding for a deficiency item, payment for all non-deficient work must still be timely made.
- If a party receiving an invoice alleges the invoice contains an error, the party must pay the correct invoice amount on the date payment would otherwise be due.
- After substantial completion of its own work, a contractor or subcontractor may facilitate the release of retainage on its contract before final completion of the project by posting a maintenance bond with an approved surety for 120% of the amount of retainage being held.
- Withholding retainage for longer than 30 days after “final acceptance of the work” will qualify as an improper withholding unless the appropriate notice requirements are followed.
- Withholding requirements also apply to subcontractors’ contracts with lower tier parties.Compliance with the notice requirements for withholding based upon deficiencies is necessary for the withholding to “not be deemed to have been wrongfully withheld.”
HB 1387 has not progressed any further since it was referred to the Pennsylvania House of Representatives’ Commerce Committee on May 18, 2017, and is not currently slated for a vote.
HB 1387, however, was amended by House Bill 566 (HB 566), which was first introduced in February of 2017 and passed with substantial bipartisan support and a vote of 168 to 26 in the Pennsylvania House of Representatives on June 20, 2017. HB 566 contains CASPA-related provisions and adds “prompt-pay” protections for contractors and subcontractors. The CASPA-related provisions of HB 566 are largely similar to those in HB 1387, with some exceptions. For instance, the two bills vary in a few noteworthy ways:
- Under HB 566, the party who has not been paid has the right to “suspend” further performance under certain circumstances. HB 1387, on the other hand, does not contain this provision.
- Under HB 566, payors in construction projects have up to fourteen (14) days from the receipt of an invoice to provide notice of the reasons for withholding payment. HB 1387, however, provides payors only seven (7) days after receipt of an invoice to provide written notice of withheld payments.
HB 566 was referred to the Senate on July 6, 2017, and is currently in the Senate’s Labor and Industry Committee. The Senate has a year from referral to vote on HB 566.
Owners, contractors, and subcontractors should be prepared for these possible changes to CASPA in 2018. We are continuing to monitor the progress of these proposed amendments and will update our clients and friends of any changes in status.
Client Alert 2018-022
