Pennsylvania’s Contractor and Subcontractor Payment Act (“CASPA”) is a powerful tool for contractors and subcontractors to ensure that they receive prompt payment for their work and may entitle them to expansive remedies, such as attorneys’ fees and penalties.  The Pennsylvania Supreme Court recently ruled that this Act does not apply to construction projects where the owner is a governmental entity.

In Clipper Pipe & Service, Inc. v. Ohio Casualty Insurance Co., the U.S. Department of Navy commissioned the construction of an addition and renovations to the Navy/Marine Corps Reserve Training Center in the Lehigh Valley.  The Navy entered into a contract with Contracting Systems, Inc. II (“CSI”) to serve as general contractor.  CSI entered into a subcontract with Clipper Pipe & Service to perform the mechanical and HVAC work.

When CSI failed to pay monies under the subcontract, Clipper sued CSI and its surety, asserting claims for breach of contract and violation of CASPA – likely because the CASPA claim would allow it to recover its attorneys’ fees and possibly a statutory penalty.  The defendants moved for summary judgment on the grounds that CASPA does not apply because the Navy, a governmental entity, does not come within the Act’s definition of an owner.  CASPA only allows a subcontractor to pursue a claim against a contractor that has entered into a contract with an owner as defined by the Act.  If the Navy was not an “owner” under the Act, CSI could not be a contractor subject to liability.

The Pennsylvania Supreme Court agreed with CSI.  CASPA defines an “owner” as “[a] person who has an interest in the real property that is improved and who ordered the improvement to be made.”  The Act defines “person” as “[a] corporation, partnership, business trust, other association, estate, trust foundation or a natural individual.”  The Court found that none of these terms encompass governments or governmental entities.  The Court ruled that because the Navy was not a person as defined under CASPA, it could not be an owner.  As a result, Clipper could not be liable for violating the Act.  The Court noted that “although we do not discount that the policy of CASPA would seem to be served by applying it to the present circumstances, such application is too disharmonious with the statutory mechanics to support the extension.”

On public projects, instead of relying on CASPA, contractors and subcontractors working in Pennsylvania must rely on the Prompt Pay Act (“PPA”), which governs the payment obligations and rights of contractors and subcontractors on public projects.  That statute, however, differs from CASPA in several ways.  It contains different timing provisions for payment, a different rate of interest, and a different burden of proof associated with penalty and attorneys’ fees provisions.  Most notably, it is more difficult for a party to recover attorneys’ fees and penalties under the PPA than it is under CASPA. For example:

• Under CASPA, a “substantially prevailing” party is entitled to recover attorneys’ fees and expenses.  The PPA, on the other hand, gives courts the discretion to award attorneys’ fees only where a party has withheld payments in bad faith.

• Under CASPA, courts must impose a 1 percent monthly penalty against an owner (or contractor) that has wrongfully withheld payments from a contractor (or subcontractor).  While the PPA also contains a penalty provision, that statute gives courts discretion to impose a 1 percent penalty if a nonpaying owner or contractor acted arbitrarily or vexatiously.