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Pennsylvania Supreme Court Explicitly Declares Attorneys’ Fees and Penalty Provision of the Pennsylvania Prompt Pay Act Discretionary

9/6/2016 | Construction Blog

n an opinion issued in July, the Pennsylvania Supreme Court categorically declared the award of attorneys’ fees and penalties under the Pennsylvania Prompt Pay Act to be discretionary. While the statute itself contains language which suggests such an outcome, the Court’s decision in Scott Enterprises, Inc. v. City of Allentown formally settles an issue which many construction practitioners understood differently and argued differently in litigation.

In the Scott Enterprise case, Scott entered into a road construction contract with the City of Allentown. After work started, it was discovered that the soil where construction was being performed was contaminated with arsenic. The City stopped work and undertook efforts to address the situation. It was eventually determined it would be safe to work if certain precautions were undertaken while the work was being done. Scott, as the contractor, refused to move forward with the work absent an agreement to cover the additional costs that would result since the City was aware that the soil may be contaminated before it originally started work on the project. An agreement could not be reached, Scott refused to return to the project, and suit was brought by Scott to recover its losses on the project.

The matter went to trial and the jury determined that the City of Allentown acted in bad faith when it refused to compensate Scott for the work. Scott argued that a verdict that the City acted in bad faith made the application of the attorneys’ fees and penalties provisions of the Procurement Code mandatory. While the Court could exercise its discretion to determine what was reasonable according to Scott, it had to award something. The City, conversely, argued that no bad faith had been proved and that the Prompt Pay Act is in fact discretionary.

The trial court determined that the Prompt Pay Act’s use of the word “may” in relation to the award of attorneys’ fees and the penalty made the decision entirely discretionary and allowed the trial court to award no fees or penalty. The Commonwealth Court agreed with Scott and reversed the trial court in holding that the award of attorneys’ fees and penalties was mandatory. Then, on discretionary appeal, the Pennsylvania Supreme Court reversed again and agreed with the trial court. The rationale was simply that the statute uses the word “may” and the rules of statutory construction require a conclusion that the award of attorneys’ fee and penalties under the Prompt Pay Act is entirely within the sound discretion of the court. Of note, the Supreme Court also acknowledged the difference between the use of the word “shall” in the Pennsylvania Contractor and Subcontractor Payment Act (for private projects) and the word “may” in the Pennsylvania Prompt Pay Act (for public projects).

The nuances which were the subject of argument in this recent case have been the subject of litigation for some time for Pennsylvania construction counsel. The state’s highest court has now declared its position, however, and the issues is settled law … for now.