Back in June, I posted about changes coming to the Pennsylvania Contractor and Subcontractor Payment Act (CAPSA), 73 P.S. Section 501, et. seq. The Act applies to virtually all private construction projects in Pennsylvania. As of last week (Oct. 10), those changes are effective. While there is some argument to the contrary, these changes are NOT retroactive and apply to all projects going forward from that date. To recap, here are some of the important changes you need to be aware of:
- Contractual waivers. Parties cannot waive the applicability of the act through contract. Therefore, any clause in a contract purporting to waive the Payment Act’s applicability is void.
- Suspension of work. Unpaid contractors and subcontractors have always enjoyed a common law right to suspend performance until payment was made. Now, they also have a statutory right to do so. Section 5 of the Payment Act ads a subpart (e) which states that an unpaid contractor or subcontractor can suspend performance without penalty if it is not paid.
- Written notice of deficiency items. Owners or contractors seeking to withhold payment must now do so in writing and with a written explanation of its good faith reason for non-payment within 14 days of receiving an invoice that it intends not to pay in whole or in part.
- Waiver of defense to payment. Perhaps the most critical change to the Payment Act is the part that says failure to provide written notice explaining non-payment within 14 days shall constitute a waiver of the basis and necessitate payment in full for the invoice. As it stands, if notice is not timely and properly provided a contractor or subcontractor could file a complaint, get an admission that written notice was not provided, and move for judgment on the pleading or summary judgment. In essence, failure to provide the required notice makes an owner or contractor strictly liable. (I cannot underscore enough how important this change is. Going forward you must be hyper vigilant about providing written notice to a contractor or subcontractor the reason you are withholding payment.)
- Retainage. If retainage is to be withheld beyond 30 days after final acceptance of the work, then an owner or contractor, as the case may be, must provide written notice as required for deficiency items.