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Be Prepared: Pennsylvania Contractor and Subcontractor Payment Act Amendments To Become Effective in
October 10, 2018
Be Prepared: Pennsylvania Contractor and Subcontractor Payment Act Amendments To Become Effective in October 2018
By Lane Kelman and Robert J. O'Brien, Cohen Seglias
On June 12, 2018, Pennsylvania Governor Tom Wolf signed into law House Bill 566, which includes several amendments to the Contractor and Subcontractor Payment Act, 73 P.S. § 501, et seq. (“CASPA”). The amendments are geared towards contractors and subcontractors, and are intended to strengthen the statute’s original intent (payment for work performed) in a number of ways.
First passed in 1994, the Contractor and Subcontractor Payment Act (commonly referred to as CASPA) was enacted as a tool for contractors and subcontractors to facilitate timely payment. The statute sets forth payment procedures and timetables, and it defines what constitutes wrongful withholding of payment. Violation of CASPA results in significant penalties, such as statutory interest, penalty interest, and assessment of attorneys’ fees and costs.
Suspension of Work
The amendments allow an unpaid contractor or subcontractor to suspend performance without penalty until the overdue payment is made. In order to exercise this new right to suspend work, the unpaid contractor or subcontractor must comply with multiple written notice provisions and waiting periods. Compliance with the notice provisions is a pre-requisite to suspending work without default.
Retainage
Under the amendments, contractors and subcontractors can secure release of retainage prior to final completion. Rather than waiting until final completion, contractors and subcontractors may post a maintenance bond with an approved surety for 120 percent of the retainage amount being withheld. The posting of the bond should effectuate payment of retainage (the amendments do not explicitly require payment with the posting of a bond). Unless written notice of deficient work is properly and timely provided, retainage may not be withheld more than thirty (30) days after final acceptance of the work, and a party in violation is liable for statutory and penalty interest and attorneys’ fees and costs.
Non-Waiver
The amendments include a “non-waiver” provision, which prohibits any part of the statute from being deleted or set aside, even if the parties were to agree to do so. In other words, the parties may not “contract around” the CASPA protections provided to contractors and subcontractors.
Written Notice of Deficient Work
The “stop work” provisions do not override the ability of an owner or contractor to withhold payment in good faith. But under the amendments, a written explanation of the good-faith reason for withholding payment must be provided. If an owner fails to provide written notice explaining why funds have been withheld, the owner will waive the ability to later dispute the invoice and must pay the contractor for the full amount of the invoice. Similar requirements exist for a contractor that withholds payment from a subcontractor.
Significantly, a party’s failure to comply with these written notice requirements results in waiver of the basis to withhold payment. Therefore, an owner or contractor disputing work must notify the other party in writing of the reason for withholding payment within fourteen (14) days of receipt of the invoice, or the ability to contest the invoice is lost and it must be paid in full.
Looking Ahead To October – And Beyond
The CASPA amendments go into effect on October 10, 2018. As drafted, the amendments are wrought with ambiguities. Time – and litigation or more amendments – will ultimately bring clarity to many of the open questions regarding application of the amendments.
Questions or Additional Information
Please contact:
Lane F. KelmanPartner
Cohen Seglias Pallas Greenhall & Furman PC
215.564.1700
lkelman @cohenseglias.com
Cohen Seglias Pallas Greenhall & Furman PC
215.564.1700
lkelman