By: Lori Wisniewski Azzara and Robert G. Ruggieri
On October 20, 2011, Senate Bill No. 1227 was introduced to the Pennsylvania Senate. The bill requires that funds paid by an owner to a contractor for work performed and/or materials furnished by a subcontractor be held in trust by the contractor, as trustee, for the purpose of paying the subcontractor. Titled the “Contractor Commingling of Funds Held in Trust Act,” the proposed bill does not require that the funds be maintained in a separate bank account, and the trustee can commingle the funds with other non-trust funds without being subject to civil or criminal penalties. However, the trustee will be subject to personal liability if he or she knowingly uses the funds for any purpose other than to pay the subcontractor. A “trustee” is defined as an officer, director or managing agent of the contractor who has control of, or direction over, the funds.
The proposed bill does not apply to residential property on which there is or will be a residential building not more than three stories in height, not including the basement, or to home improvement contracts as defined by the Home Improvement Consumer Protection Act.
Several other states, including New Jersey, Delaware, Maryland, and New York, have enacted similar construction trust fund statutes in an attempt to ensure that subcontractors are paid the monies owed to them for labor and/or materials supplied to construction projects. If passed in Pennsylvania, the proposed bill will provide useful remedies for subcontractors and will also impose significant obligations and penalties on contractors. We will continue to follow this proposed bill as it makes its way through the Pennsylvania legislature.
Lori Wisniewski Azzara is an associate at Cohen Seglias Pallas Greenhall & Furman PC. Mrs. Azzara practices in the areas of construction and commercial litigation and has experience in contract negotiation, claims for delay and inefficiency, mechanics’ liens, and all types of contractual disputes.