On October 10, 2018, the amendments to the Contractor and Subcontractor Payment Act, 73 P.S. § 501, et seq. (CASPA) will take effect and significantly impact the rights and duties of owners, contractors, and subcontractors on all Pennsylvania commercial construction projects and some residential projects.
First passed in 1994, CASPA was enacted as a tool for contractors and subcontractors to receive timely payment. As most in the industry know, the statute sets forth payment procedures and timetables, and it defines what constitutes a wrongful withholding of payment. Violations may result in significant penalties, such as statutory interest, penalty interest, and assessment of attorneys’ fees and costs.
The amendments contain the following changes:
Suspension of Work
If payment is not provided by an owner or contractor, the unpaid contractor or subcontractor – after proper notice – may suspend performance of its work. Suspension of work without penalty until the overdue payment is received. In order to exercise its right to suspend work, the unpaid contractor or subcontractor must comply with two written notice provisions and waiting periods of 30 days followed by ten days. Compliance with these notice provisions is a pre-requisite to suspending work without default.
Contractors and subcontractors may secure the release of retainage before final completion. Rather than waiting until final completion, contractors and subcontractors now have the right to post a maintenance bond with an approved surety for 120 percent of the withheld retainage amount. The posting of the bond obligates the owner or contractor to release the retainage where there is no notice of a deficiency item. Further, unless written notice of deficient work is properly and timely provided, retainage may not be withheld more than 30 days after final acceptance of the work.
The amendments include a non-waiver provision, which prohibits any part of the statute from being contracted out or set aside. In other words, the parties may not “contract around” the CASPA protections provided to contractors and subcontractors.
Written Notice of Deficient Work
The “stop work” provisions do not override the ability of an owner or contractor to withhold payment in good faith. But under the amendments, if an owner or contractor fails to provide timely written notice explaining why funds are withheld, the statute says an owner waives the ability to later dispute the invoice. An owner disputing work must provide written notice for withholding within 14 days of receipt of the invoice, or risk losing the right to dispute payment and the invoice must be paid in full. For a contractor or a subcontractor withholding payment from a downstream subcontractor, the written notice must be provided within the time period specified in the subcontract or, if none is specified, then the written notice is required within 14 days, or the basis to withhold payment is waived.
The CASPA amendments go into effect on October 10, 2018. It is vital that owners, contractors, and subcontractors involved in Pennsylvania construction projects become familiar with the new guidelines. As drafted, the amendments do contain ambiguities. Time – and litigation – may ultimately bring clarity to many of the open questions regarding the application of the amendments.