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Pennsylvania Supreme Court Limits Applicability of Contractor and Subcontractor Payment Act


Posted on August 14, 2015

Several months ago, this blog discussed the provisions of Ohio’s Prompt Pay Act (“PPA”) and The Pennsylvania Contractor and Subcontractor Payment Act (“CSPA”), which are designed to provide protections to subcontractors’ and materialmens’ right to be paid for their work. Under the CSPA, contractors must pay their subcontractors by the later of fourteen (14) days after the contractor’s receipt of payment or fourteen (14) days after receipt of the subcontractor’s invoice. A contractor that fails to pay within this period 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.

Recently the Pennsylvania Supreme Court issued a decision in Clipper Pipe & Service, Inc. v. The Ohio Casualty Ins. Co.; Contracting Systems, Inc. II, clarifying and limiting the applicability of the CSPA by holding that the law does not apply to public works construction projects. In Clipper Pipe, the United States Department of the Navy hired Contracting Systems, Inc. II (“CSI”) to serve as the general contractor for the construction of and renovations to the Navy/Marine Corps Reserve Training Center in the Lehigh Valley. CSI subcontracted the mechanical and heating, ventilation, and air conditioning work to Clipper Pipe & Service, Inc. (“Clipper”).

CSI failed to pay Clipper approximately $150,000 and Clipper filed suit in federal court against CSI and its surety for violations of the CSPA. After a jury trial, Clipper was awarded interest, penalties, and attorneys fees as made available by the CSPA. CSI appealed and the federal appellate court looked to the Pennsylvania Supreme Court for an answer to the question “does [the CSPA] apply to a project where the owner is a governmental entity, such as the federal government in this case?” Interpreting the language of the CSPA, the PA Supreme Court held that the statute does not apply to governmental projects because a governmental entity is not an “owner” as defined therein, because governmental entities do not fall within the definition of a “person.” Prior to this decision, Pennsylvania’s appellate courts had divided on the question whether the CSPA applied to public works construction projects.

Evaluating claims and defenses and assessing possible exposure to claims under the Ohio PPA and 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 contact Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971 or tharpst@harpstross.com or nhorrigan@harpstross.com.

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