Today’s the day! That is, October 10, 2018…
Pennsylvania contractors, subcontractors, and even property owners should take note – HB 566 comes into effect today. HB 566 made changes to the Pennsylvania Contractors and Subcontractors Payment Act (also known as CASPA). These changes affect how payment is withheld, penalties for wrongful withholding, and the right to stop work – among other slight changes. Let’s do a quick overview of some of the biggest alterations. For a more in-depth look, take a look at the link below.
An In-Depth Look:
Pennsylvania Contractors and Subcontractors Payment Act
The changes aren’t necessarily earth shattering. Still, it’s important to understand the rules. Let’s break it down by topic…
Retention is always contentious. These rule changes seem to make the whole ordeal a little more fair. Now, under the Contractors and Subcontractors Payment Act, amounts withheld by an owner from a contractor must be “reasonable” and the owner must provide their contractor with a “Notice of Withholding”. This is a written explanation of a good faith reason for withholding payment, and it must be sent within 14 days of receiving the invoice for payment. Plus, only payments tied to that reason for withholding may be withheld (i.e. An owner can’t withhold amounts that aren’t related to the problem at hand).
Contractors and subcontractors must follow the same rules – a Notice of Withholding must be provided within 14 days of withholding payment, and only payments that relate to the reason for withholding payment can be withheld.
Importantly: If an owner, contractor, or sub fails to provide a written explanation (Notice of Withholding), they will waive the right to withhold that payment!
Penalties for Wrongful Withholding
Under these changes, if a dispute goes to arbitration or litigation and amounts have been improperly withheld, a new statutory penalty will apply – 1% interest/month. If there’s a reasonable connection between the amount withheld and the value of the dispute and a Notice of Withholding was sent, then amounts will not be considered wrongfully withheld (and the interest penalty won’t apply).
The Right To Suspend Work
The new rules establish the right to stop work under a certain situation. This right can be modified by contract, but the contract can’t set out a process that’s more stringent than the one created by statute.
As for the statutory process: Essentially, 30 days after payment was due to the contractor, that contractor must provide written notice to the owner notifying of nonpayment (via email or snail mail). 30 days after sending the notice, if payment still hasn’t been made, the contractor can send a Notice of Intent to Suspend Performance (via certified mail). If payment isn’t made 10 days after sending Notice of Intent to Suspend Performance, work may be suspended.
It’s relatively similar for subcontractors. Under 73 § 507(c), payment to a subcontractor is due at the later of the following dates: (1) 14 days after their customer receives payment; or (2) 14 days after receipt of the subcontractor’s invoice. If that payment is late, under the changes to the Contractors and Subcontractors Payment Act, a subcontractor can send initial notice of overdue payment. If payment still isn’t received within 30 days of that notice, the subcontractor can send a Notice of Intent to Suspend Performance. 10 days later, if still unpaid, the sub is entitled to suspend performance.
If there’s an error in an invoice, the party who received the invoice needs to notify the party who sent it. Now, even when there’s an error, the the correct amount of the invoice must still be paid within the timeframe required under the Contractors and Subcontractors Payment Act.
Posting Security for Early Release of Retainage
Another addition to the Contractor and Subcontractor Payment Act is the posting of security in exchange for early release of retainage. By posting a bond that’s 120% of the amount being retained, a contractor or sub can get their hands on retainage a little earlier.
The changes don’t represent some massive shift, but they do seem to lead toward a fair payment ecosystem in Pennsylvania. Officially designating the Right to Suspend Work as a tool to compel payment is helpful. Mandating that retention amounts be justified in writing will certainly reign in the improper use of retainage. Plus, clarifying what penalties may apply should always help push everyone toward compliance. While the above changes do help combat retainage-bullying, slow payment will still be a problem. Still – it seems a step toward fairness.