Pennsylvania’s Contractor and Subcontractor Payment Act (the “Act”) became law in 1994 and outlined payment guidelines and protections for contractors and subcontractors in Pennsylvania’s private construction sector. The Act sets forth minimal payment timelines and procedures, defines what constitutes a wrongful withholding payment for completed work, and articulates any mandatory penalties (such as statutory interest, penalties, and attorneys’ fees) that could be assessed for violation of the law.
On October 10, 2018, amendments (the “Amendments”) to the Act strengthening contractors’ and subcontractors’ payment rights and clarifying previously vague provisions become effective. The Amendments attempt to further clarify certain aspects of the law by:
- Prohibiting waiver of the Act;
- Permitting contractors and subcontractors to suspend work for nonpayment;
- Requiring owners to provide written explanations for withholding payment; and
- Authorizing contractors and subcontractors to facilitate release of retainage by posting a maintenance bond.
The Amendments explicitly articulate that unless specifically authorized by the Act, parties to a contract or other written agreement are prohibited from waiving a provision of the law by contract or other agreement. This particular aspect of the Act often led to disputes in the industry and the Amendments make clear that provisions of the Act may not be written out of contracts unless so authorized by the statute.
The Amendments further authorize a contractor and subcontractor to suspend performance of work without penalty in the event that it has not received proper payment in accordance with the terms of the construction contract. If payment has not been made within 30 days after the due date, then the contractor must provide the owner with written notice of the nonpayment and then wait an additional 30 days from the day that the notice was sent. If payment still has not been made within such additional 30 day period, then the contractor is permitted to provide 10 days written notice to the owner of its intent to suspend work. Subcontractors are allowed to follow the same procedure by providing written notice to the contractor rather than the owner.
Pursuant to the Amendments, if an owner withholds payment from a contractor for a deficiency, then the owner must now provide a written explanation setting forth its good faith reason for withholding payment within 14 days after receiving an invoice for such deficient work from the contractor and the amount withheld must be reasonable. If the owner fails to provide written notice to the contractor within this time period, such failure to respond will constitute a waiver of the basis for withholding and the owner will be required to pay the invoiced amount in full. Contractors are allowed to follow the same procedure with respect to withholding payment to subcontractors.
In order to withhold payment for errors in documentation, the recipient of the incorrect or incomplete invoice must provide notice of the errors to the sender of the invoice within 10 days after receipt of the invoice. Once written notice of the errors has been received, the correct amount due per the terms of the contract must be paid on the date it is due.
Regarding retainage, a contractor or subcontractor may facilitate release of retainage upon substantial completion of its own scope of work by posting a maintenance bond of 120 percent of the amount of retainage withheld. The Act requires that payments subject to retainage are required to be paid within 30 days after final acceptance of work.
The amended language of the Act provides clarity to previously vague provisions of the Act. For more information regarding the Act and how it may affect construction contracts moving forward, please contact an attorney at Unruh, Turner, Burke & Frees at 610.692.1371.
