Pennsylvania is on the verge of a tougher contractor payment law that adds remedies including suspension of work, anti-waiver provisions, and mandatory payment for work successfully completed.
These measures were passed last summer with Pennsylvania House Bill 566, which garnered overwhelming bipartisan support. The bill is expected to be voted on by the Pennsylvania Senate in 2018.
The current Contractor and Subcontractor Payment Act ("CASPA") 73 P.S. § 501, et seq. applies to commercial contracts and residential projects with more than six units and has been law since 1994. It is important to note CASPA does not apply to government contracts, which is governed by Pennsylvania's Prompt Payment Act (62 Pa.C.S.A. § 3901).
CASPA's current iteration already has "teeth." It compels payment when contractual terms are silent, allows for mandatory attorney fees to the substantially prevailing party in any litigation, and packs a walloping maximum interest rate of 24 percent on any unpaid amounts.
However, the current version of CASPA pales in comparison to the update contained in HB 566.
Some of the more powerful measures of the proposed CASPA amendments are:
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Anti-waiver provisions. CASPA cannot be written out of contracts;
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Owners or generals must provide written notice of why payments may be withheld or any objections are waived;
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All amounts withheld by owners or generals must be reasonable and made in "good faith;"
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All work successfully done must be paid for;
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Contractors must pay subs retainage within 30 days of acceptance;
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Early retainage release can occur with the posting of a bond; and
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Suspension of work is permitted after written notice requirements.
These proposed measures should give owners and general contractors pause when considering how they administer contracts and review payment applications. The penalties certainly could be steeper and contractors/subcontractors could command leverage like never before.
As with any larger construction contract, strict enforcement and attention to detail will be vital. Owners and general contractors should ensure they are familiar with the changes to the law, if enacted, and pay particular attention to payment applications, deficiency notices, change orders, and the need for detailed information to contractors regarding any sums withheld.
Contracts also should be modified to accommodate these changes to CASPA to minimize the chances that waiver or other avoidable errors occur.
Between the proposed changes to CASPA and the recent changes to the Pennsylvania Mechanic's Lien Statute, owners and general contractors have plenty to consider when planning projects in the future.
