Effective October 10, 2018, contractors performing work in Pennsylvania will be the beneficiary of changes to the Contractors and Subcontractors Payment Act, 73 P.S. §501 (CASPA). With the amendments to CASPA, the legislature attempted to level the negotiating playing field by giving the Protective Act some teeth. It is important for contractors and subcontractors to understand these revisions to capitalize on the added protections during the front-end negotiations for projects in Pennsylvania.
CASPA was originally enacted in 1994 with the intent of protecting contractors and subcontractors from slow pay and no pay owners. However, many considered CASPA to be a paper tiger, with no bite. The 2018 amendments seek to change this.
Limited Right to Withhold
No longer can Owners wholly refuse payment based upon minor deficiencies in the Contractors work. While the Owner (or upstream Contractor) may withhold payment for "good faith claims," the Owner must now:
- Provide a written explanation for the basis of the withholding within 14 days of receipt of the Contractor's invoice; and
- Only withhold an amount that is reasonably sufficient to cure the deficiency item.
An Owners' failure to comply with the "written explanation" requirement constitutes a waiver of the Owner's rights to withhold payments (including retainage). This is a big change that applies to new and existing contracts. Contractors are well advised to be vigilant in enforcing this right.
Right to Stop Work
Equally important is the Contractor's new statutory right to stop work, without penalty, until it is paid in accordance with the contract. The amendments set out a procedure (30-30-10) for a work stoppage, which requires:
- Lack of payment in accordance with the payment schedule (20 days after the end of the billing period or Owner’s receipt of invoice, unless otherwise agreed by the parties);
- Written notice by Contractor to Owner of non-payment, at least 30 calendar days after payment was due; and
- 10 days written notice of Contractor’s intent to stop work at least 30 days after the Contractor provided written notice of non-payment to owner.
This provision codifies the maximum amount of time an Owner can wrongfully withhold payment before a contractor may stop work. Note that this time may be shortened by contract.
The Maintenance Bond
CASPA will now permit a Contractor or Subcontractor to facilitate the release of retainage by providing a maintenance bond for 120% of the retained amount at substantial completion. The benefits of this addition to the statute will again depend on the size of the project and the retained amount.
The Prohibition of Waivers
These protections set forth in CASPA are absolute, as Section 3 specifically prohibits a waiver of any provision of the Act by contract or other agreement.
It is important to understand the interplay between Contract terms to take full advantage of these new protections. Contractors and Subcontractors can (and should) implement internal procedures to ensure prompt payment and avoid becoming a source of financing for the completion of a project.