Posted on June 02, 2015
Several months ago, this blog discussed the provisions of Ohio’s Prompt Pay Act (“PPA”) and the protections that it offers subcontractors and materialmen’s right to be paid. The PPA requires that subcontractors and materialmen be paid within ten calendar days of the contractor receiving payment or retainage from an owner, and imposes a penalty of 18% interest and attorneys’ fees for those that violate its provisions.
Pennsylvania has adopted similar protections for subcontractors and materialmen, which allow for even harsher penalties for violations of its payment provisions. The Pennsylvania Contractor and Subcontractor Payment Act (“CSPA”) provides that, in the case of a contractor, payment of invoices is due from the owner on the later of twenty (20) days after the end of a billing period or twenty days after delivery of the invoice. For a subcontractor, payment is due on the later of fourteen (14) days after the contractor’s receipt of payment or fourteen (14) days after receipt of the subcontractor’s invoice.
The CSPA also mandates that an owner or contractor must pay interest at the rate of one percent (1%) per month, beginning on the eighth day after payment is due, which amounts to interest at a rate of twelve percent (12%) per year. Further, if a contractor or subcontractor is forced to litigate and a court determines that the owner or contractor violated the CSPA, the court may award a penalty equal to one percent (1%) per month of the amount that was wrongfully withheld. This means that a contractor or subcontractor that successfully prosecutes a claim under the CSPA can recover interest on the unpaid amount of up to twenty-four percent (24%) per year.
Although the CSPA offers protections that are stronger than most, if not all, other similar state laws, Pennsylvania lawmakers have introduced legislation that would further bolster the benefit provided to contractors and subcontractors by the law. House Bill 726 (“HB 726”), recently considered at a public hearing in May, would include language automatically voiding any contractual provision intended to waive rights or obligations CSPA.
HB 726 would also insert a provision requiring that an owner or contractor withholding payment provide notice of a deficiency item and a good faith reason for the withholding in writing. The CSPA does not currently require such notice in writing, which has opened the door for owners and contractors to later allege, when faced with a CSPA claim, that notice of the reason for withholding of payment was verbal. The notice requirements would also be amended to such that the failure to provide written notice of the reason for withholding payment constitutes a “waiver of the basis to withhold payment.” HB 726 would increase the amount of penalty interest to one and a half percent (1.5%) per month. Finally, HB 726 would create a mechanism by which a contractor or subcontractor could post a maintenance bond equal to one hundred twenty percent (120%) of the retainage being held on its contract in order to have the retainage released after substantial completion of its scope of work.
Evaluating claims and defenses and assessing possible exposure to claims under the Ohio PPA and the Pennsylvania CSPA are undertakings that can, and should, be discussed with experienced legal counsel. For questions regarding Ohio’s Prompt Pay Act, The Pennsylvania Contractor and Subcontractor Payment Act, or any other aspect of Ohio construction law, please Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971 or firstname.lastname@example.org or email@example.com.
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