New Pennsylvania Law Regulates Payment Disputes in Private Construction

Amendments to the Contractor and Subcontractor Payment Act govern stop work and withholding of payments to speed settlement of disputes

Vic Lance

Pennsylvania legislators recently amended the Contractor and Subcontractor Payment Act (CASPA) in ways that add protection for contractors and subcontractors working on private construction projects. The changes came into effect on October 10, 2018 and are the first since 1994.

The act, which is known as House Bill 566, was signed into law on June 12 by Governor Tom Wolf. It alters a number of provisions regarding the timely payment and written notices that project owners, contractors and subcontractors should comply with. The new stipulations define the cases in which there is unlawful payment withholding and what the penalties, statutory interest and attorney fees can be in such situations.

Construction companies can now make use of new types of protection mechanisms that are available to them. To this end, they have to meet deadlines and rules regarding the sending of official notifications and the contracts they sign.

The most important novelties in the CASPA are outlined below.

Enhanced safety nets for contractors

Changes to the CASPA set forth statutory requirements to ensure that contractors can obtain their payments from project owners in due time. They also provide for ways to settle conflicts on project payments.

The amendments stipulate that contractors and owners who want to enter a contract or agreement cannot waive CASPA. In case contractors do not receive their due payments according to the signed contract, they have the right to stop working on the project.

Suspension of work is legally possible in case the contractor sends two types of notices. The first one is notice of non-payment at least 30 days after the unpaid billing period has concluded. The second one is a notice that they plan to stop work, which should be sent 30 calendar days after the first notice and a minimum of 10 days before actual suspension of work.

The Act now also outlines how project owners have to communicate in cases of withholding payments. They should provide a written statement within 14 days of receiving an invoice, giving clear explanations about their reasons. If they fail to do that, they are required to make the necessary payments, or face legal consequences. Any payments which are not disputed have to be processed as well.

When an owner discovers a mistake in an invoice, they have 10 days from receiving it to provide a notification to the contractor. Afterwards, the project owner is required to make the correct payment as per the contract.

Besides extra protection for contractors vis-a-vis project owners, subcontractors similarly get additional ways to safeguard their interests against non-payment.

Maintenance bond option for retainage

One of the amendments that contractors and subcontractors can benefit from is the option for receiving retainage on contracts. The Pennsylvania CASPA now allows construction specialists to provide a security in the form of a maintenance surety bond, so that they can obtain full release of retainage when they have completed a large part of the contracted work. The bond amount that they have to post is equal to 120% of the retainage.

Maintenance bonds are a type of construction bonds that are often used in both private and public contracts. Their goal is to guarantee that a contractor who has worked on a project will maintain the construction for a fixed period of time after its completion. By allowing Pennsylvania contractors to replace the retainage amount with a surety bond, legislators are providing higher financial freedom, while not jeopardizing the interests of project owners.

In order to get bonded, contractors have to cover a fraction of the required bond amount, which is typically between 1% and 3%. The exact bond costs are determined on the basis of the construction specialist’s personal and business finances.

Vic Lance is the founder and president of Lance Surety Bond Associates. He is a surety bond expert who helps contractors get licensed and bonded. Vic graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan’s Ross School of Business.

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