Most states have a “prompt payment act” that protects contractors’ and subcontractors’ right to payment for work on public projects. Pennsylvania also has a law that protects contractors’ and subcontractors’ right to payment on many private projects. The Contractor and Subcontractor Payment Act (“CASPA”), and the amendments that went into effect in October 2018, make for a powerful payment collection tool in Pennsylvania.
Among other things, CASPA provides for payment deadlines and procedures and specifies what constitutes wrongful withholding of payment for completed work. If litigation or arbitration become necessary, CASPA adds 1% per month interest on any judgment that is obtained plus 1% per month in penalties for violations of the statute. Also, the substantially prevailing party will be awarded attorneys’ fees.
The following is a brief overview of the major points in CASPA, the strengthening effect of the 2018 Amendments, and what you should know if you administer contracts in Pennsylvania.
Owner Payment Obligations Under CASPA
- Owners must pay contractors strictly in accordance with the terms of the contract. This underscores the necessity of understanding the payment terms and conditions of your contract.
- Payment of interim and final invoices are due from the owner 20 days after the end of a billing period or 20 days after delivery of the invoice, whichever is later. This 20 day period may be altered by the contract.
- Except as otherwise agreed, if any progress or final payment to a contractor is not paid within 7 days of the due date, the owner is liable to the contractor, beginning on the 8th day, for interest at 1% per month or fraction of a month on the balance due.
2018 Amendments Applicable to Both Owners and/or Contractors:
- Anyone seeking to withhold payment for defective work must set forth the exact amount to be withheld and provide a written explanation of the good faith basis for the withholding within 14 calendar days of the date the invoice is received.
- Failure to provide proper and timely written notice waives the payor’s right to withhold and requires payment in full. A payment may never be withheld for more than the amount in dispute.
- A suspension of work process is spelled out for situations where payment has not been timely received.
- Parties cannot waive CASPA’s payment protection provisions by private agreement.
Contractor and Subcontractor Payment Obligations
Before a subcontract is executed:
- A contractor must disclose to its subcontractors the due date for receipt of payment under the contractor’s contract with the owner.
- If it fails to do so, the contractor shall be obligated to pay the subcontractor as though the due dates set forth in the CASPA statute were met by the owner. This provision does not apply to a change in due dates because of conditions beyond the control of the contractor, such as design changes, change orders, or delays due to weather.
- If a subcontractor has performed in accordance with the subcontract, then the contractor must pay the subcontractor (and each subcontractor must pay its sub-subcontractors) the full or proportional amount received for each subcontractor’s work and materials within 14 days after receipt of each progress or final payment or 14 days after receipt of the subcontractor’s invoice, whichever is later. An exception applies if payment is being properly withheld under CASPA rules for a good faith claim.
Errors in Documentation
- If an invoice is incorrect or incomplete, the owner, contractor or subcontractor receiving it must give written notice to the party that sent it within 10 working days of receipt.
- The person receiving it must pay the “correct amount of the invoice” (in other words, the amount actually due).
- Retainage must be paid within 30 days after final acceptance of the work (for contractors and subcontractors).
- Retainage to sub-subcontractors must be paid within 14 days of acceptance of the work.
- If retainage is unreasonably withheld or not paid when required, then the owner, contractor or subcontractor is liable for 1% per month interest in addition to 1% per month interest and attorney fees incurred in collection.
- A contractor or subcontractor may post a maintenance bond of 120% of retainage upon substantial completion and thereafter obtain its release. Retainage may not be held for more than 30 days after final acceptance of the work unless a proper written notice of deficiency is delivered.
Contractor Withholding for Good Faith Claims
- A contractor or subcontractor may withhold payment for a deficiency item.
- A contractor or subcontractor must timely pay their subcontractors for any completed item that is not in dispute.
- If a contractor or subcontractor withholds payment from a subcontractor for a deficiency item, it must notify the subcontractor or supplier and the owner of the reason within the time period specified in the contract or 14 calendar days of the date after receipt of the notice of deficiency item.
Penalty and Attorney Fee
- If arbitration or litigation is initiated to recover payment under CASPA and it is determined that an owner, contractor or subcontractor failed to comply with the payment terms of CASPA, then the arbitrator or court must award, in addition to all other damages due, a penalty equal to 1% per month of the amount wrongfully withheld.
- Also, the “substantially prevailing party” in the litigation shall be awarded its reasonable attorney’s fees, which will be determined by the court or arbitrator, plus expenses.
Pennsylvania Law Applies
- A contract for a Pennsylvania job attempting to make the law of another state applicable or providing for a forum for dispute resolution in another state is unenforceable.
We are happy to discuss CASPA and how it affects you and your business. Please contact Adam Ennis at (724) 749-3180 or at firstname.lastname@example.org.