PENNSYLVANIA ENACTS AMENDMENTS TO ITS CONTRACTOR AND SUBCONTRACTOR PAYMENT ACT
7/26/2018 | General
Pennsylvania’s Contractor and Subcontractor Payment Act (“CASPA”) was enacted in 1994 to address construction industry payment abuses between owners, contractors, subcontractors, and suppliers. The underlying purpose of CASPA is to protect the payment rights of contractors and subcontractors and to encourage fair dealing among parties to a construction contract. The statute provides rules and deadlines to ensure prompt payment, to discourage unreasonable withholding of payment, and to address the timing of progress payments and retainages. Under circumstances prescribed in the statute, interest, penalty, attorney fees and litigation expenses can be imposed on an owner, contractor or subcontractor which fails to make payment to a contractor or subcontractor in compliance with CASPA.
On June 12, 2018, Governor Wolf signed House Bill No. 566 which makes significant changes to CASPA. The amended CASPA law will take effect in 120 days after it was signed. Highlights of the amendments are as follows:
The amendments to CASPA now allow a contractor or subcontractor to suspend work for nonpayment after certain conditions are met. The general procedure relating to a contractor’s and subcontractor’s right to suspend work is as follows:
► A contractor has the right to suspend its work until it receives the payment required under its contract if each of the following has occurred: (1) payment has not been made in accordance with the terms of the contract (or if the contract is silent, within 20 days after the end of the billing period or 20 days after delivery of the invoice, whichever is later); (2) 30 days have passed since the end of the billing period for which payment has not been received, and contractor provides written notice to the owner or its agent that payment has not been made; and (3) 30 days have passed since written notice has been sent, and contractor provides a second written notice to owner or owner’s agent via certified mail of its intent to suspend performance.
► A subcontractor has a similar right to suspend work until it receives payment required under its subcontract if each of the following has occurred: (1) payment has not been made to the subcontractor in accordance with the terms of the contract (or if the contract is silent, within 14 days after contractor receives payment from the owner or 14 days after receipt of subcontractor’s invoice, whichever is later); (2) 30 days have passed since the end of the billing for which payment has not been received, and subcontractor provides written notice to the contractor or its agent stating that payment has not been made; and (3) 30 days have passed since written notice has been sent, and subcontractor provides a second written notice to contractor or contractor’s agent via certified mail of its intent to suspend performance.
Before the amendment to CASPA, an owner, contractor or subcontractor had the right to withhold payment for “deficiency items”. The amendment modifies the procedures relating to the withholding of payment for deficiency items:
► In order for the owner to withhold payment for deficiency items, the amount must be reasonable, and the owner must provide a written explanation of its good faith reason for withholding payment within 14 calendar days of the date that it receives the invoice. If an owner fails to comply with this procedure, the owner will be deemed to have waived its right to withhold payment and then will be required to pay the contractor for the full amount stated in the invoice. Even if the owner withholds payment from a contractor for a deficiency item, it is still required to pay the contractor for any other item that has been satisfactorily completed under the construction contract.
► Contractors are allowed to withhold payment from subcontractors for deficiency items, and subcontractors are allowed to withhold payment from sub-subcontractors and suppliers under the same conditions and timetable applicable to owners.
The CASPA amendments now provide a contractor or subcontractor with the opportunity to facilitate the release of retainage under 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 withheld.
The CASPA amendments specify that if an owner, contractor or subcontractor withholds retainage for longer than 30 days after final acceptance of the work, the party withholding retainage must comply with the notice procedures governing withholding of payment for deficiency items.
The amendments prohibit any waiver of any provision of CASPA unless such waiver is specifically authorized under the CASPA statute.
This fall, before the amendments to CASPA become effective, Kaplin Stewart’s construction group will present programs discussing and explaining in greater detail how the amendments to CASPA will impact all of the participants in the construction industry. Look for an announcement of these programs soon.
For more information contact William D. Auxer at email@example.com 610.941.2519 & Kevin G. Amadio firstname.lastname@example.org 610.941.2533