For more than twenty years the Contractor and Subcontractor Payment Act (CASPA) has been a law in Pennsylvania providing a tool for Contractors and Subcontractors to get paid. Conflict between Owners, Prime Contractors, Subcontractors, and subs of subs is a common occurrence in the realm of construction law. CASPA provides a powerful weapon for Contractors and Subcontractors whose work is performed but who do not receive payment without a bona fide dispute. On the flip side, Owners of real estate who hire construction professionals need to be careful if there are disputes when it comes time to pay the bill.
Any time one person hires another and doesn’t pay, the unpaid party can bring a lawsuit seeking payment. CASPA has long provided unpaid Contractors with additional remedies above and beyond what is available to other claimants. It allows the unpaid party to seek not only the unpaid amounts but also a penalty equal to 1% per month of the amount unpaid, 1% interest per month, and attorney’s fees.
That is, taken together, CASPA adds a total of 24% per year to the principal amount owed to Contractors and Subcontractors. That is no small thing, and well in excess of the ordinary time value of money. Additionally, the ability of Contractors and Subcontractors to seek their attorney’s fees is a powerful remedy. Ordinarily, in the American legal system, each side pays their own attorney’s fees irrespective of who ultimately prevails in the litigation. Accounting for these costs usually provides defendants with leverage in negotiating how much they might ultimately pay. By providing this remedy, CASPA puts a thumb on the scales for unpaid Contractors in these negotiations.
That being said, CASPA also provides some protections for Owners to help prevent this leverage from being used unfairly. First, an Owner is permitted to withhold payment for a “deficiency item,” defined as
Construction work which has been performed but which the Owner, the Contractor, or the inspector will not certify as being completed according to the specifications of the construction contract. Where work is not yet completed or performed improperly, the Owner can withhold payment, provided that the Owner notifies the Contractor of the deficiency within fourteen days after receiving the invoice and pays for the completed portion of the work. CASPA also provides Contractors with similar protection as to claims made by their subs.
Although CASPA has been on the books since 1994, in 2018 it was expanded and strengthened. Pennsylvania Governor Tom Wolf signed a new law that overhauled CASPA and expands the remedies available to unpaid Contractors and Subcontractors. These changes became effective as of October 10, 2018.
One primary update is that CASPA’s protections expressly cannot be waived by contract. That is, even if an Owner has the leverage to insist that a Contractor waive its CASPA rights in a written contract, that provision would not be valid or enforceable. The Contractor could still pursue, for example, the interest, penalty, and attorney’s fees remedies for unpaid work.
An additional caveat in the updated CASPA is that a Contractor or Subcontractor is expressly authorized to stop performance until payment is received. An Owner is entitled to withhold payment if the work is deficient, but now the Owner is required to provide notice regarding the deficiency which allegedly justifies nonpayment within fourteen (14) calendar days of receipt of the disputed invoice. Owners will need to ensure that they observe this provision and provide prompt notice of deficient work along with an explanation of why they are withholding payment. An Owner who fails to provide written notice may waive their right to withhold payment for the deficient work.
The updated CASPA also deals with retainage. Retainage, sometimes called retention, is a common concept in the construction industry, where a portion of the contract price is consensually withheld until the work is substantially complete, to ensure that the Contractor or Subcontractor fulfills its obligations. Under CASPA, retainage is to be paid within thirty (30) days of final acceptance of work. If not, the unpaid Contractor can seek the same interest, penalty, and fees for non-payment mentioned above.
Where a Contractor or Subcontractor submits an invoice, which contains errors or some impropriety relating to the paperwork, CASPA imposes an affirmative duty to act on the Owner or Contractor receiving that invoice. They are required to give written notice within ten (10) working days of the error in the invoice. Once notice is received, the Owner or Contractor is still required to pay the invoice by the due date.
For public works projects, CASPA will not apply, and instead, the Pennsylvania Prompt Payment Act is applicable. CASPA also does not apply to residential construction, unless the project involves simultaneous construction of seven or more units.
As a result of these changes, Contractors, Subcontractors, Owners of real estate and real estate developers more generally will want to look over their contracts and evaluate how they deal with disputes over construction work. Everyone involved in the field will do well to pay careful attention to deadlines and act promptly to give notice of deficiency items.
As with any new law, there are important details in the amendments to CASPA for Owners, Contractors, Subcontractors, and subs of subs. If you are facing a legal challenge in a construction project, it is important to act promptly and document the situation to protect your legal interests. It is often better to consult legal counsel sooner rather than later in the process so that important rights are not lost. The lawyers at Fitzpatrick Lentz & Bubba, P.C. are always available and willing to help.
Joshua A. Gildea is a shareholder and attorney in the Fitzpatrick Lentz & Bubba’s Litigation Group. His practice includes commercial litigation, civil litigation, bankruptcy, complex commercial matters, landlord tenant and construction matters. He also practices in the area of intellectual property law. He can be reached at email@example.com or 610-797-9000.