On October 10, 2018, the amendments to the Contractor and Subcontractor Payment Act, 73 P.S. § 501, et seq. (CASPA) will take effect and significantly impact the rights and duties of owners, contractors, and subcontractors on all Pennsylvania commercial construction projects and some residential projects.

First passed in 1994, CASPA was enacted as a tool for contractors and subcontractors to receive timely payment. As most in the industry know, the statute sets forth payment procedures and timetables, and it defines what constitutes a wrongful withholding of payment. Violations may result in significant penalties, such as statutory interest, penalty interest, and assessment of attorneys’ fees and costs.

Continue Reading PA CASPA Amendments Become Effective October 10

Last week, the Supreme Court of Pennsylvania  issued a decision which has important consequences for all members of the construction industry involved with public works projects. In Clipper Pipe & Service, Inc. v. The Ohio Casualty Insurance Co., the Court held that the Contractor and Subcontractor Payment Act (CASPA), which is a statute that addresses when payments are to be made on construction projects and provides remedies for noncompliance, does not apply to public works construction projects. The Court’s decision means that, when working on public projects, the contractor-friendly remedies under CAPSA are not available to contractors and subcontractors, who must now rely exclusively on the less favorable and less certain relief under Pennsylvania’s Prompt Payment Act (PPA).

Court, vintage scales and dollar sign.

Prior to the Court’s decision, it was unclear whether CASPA applied to nonpayment claims on public works construction projects because the courts were divided. After the Supreme Court’s decision in Clipper Pipe, CASPA’s favorable remedies are no longer available to contractors or subcontractors on public works projects.  Those remedies are only available on private construction projects in Pennsylvania.

By clarifying the applicability of CASPA, the Court’s holding has practical consequences for all construction project participants. CASPA and the PPA have important differences that affect the rights of owners, contractors, and subcontractors (which includes second-tier subcontractors/suppliers). The most important differences involve the penalty, attorney’s fees, and interest provisions of the respective statutes.

CASPA requires a court to impose a penalty of one percent (1%) per month on a party who has wrongfully withheld payments. The PPA provides a court with discretion to award an additional one percent (1%) penalty if the court determines that the nonpaying party acted in an “arbitrary” or “vexatious” manner in withholding the payment(s) in question. The CASPA penalty, unlike the PPA penalty, is not discretionary.  Therefore, an unpaid contractor has a better chance of recovering additional damages under CASPA than under the PPA for wrongful withholding of payments.

CASPA also mandates an award of reasonable attorney’s fees to the substantially prevailing party in litigation or arbitration. The court is permitted, but not required, to award attorney’s fees under the PPA to the prevailing party, if the party withholding payment acted in bad faith. Although a contractor has a higher burden under CASPA (“substantially” prevailing party), if it meets that standard, the court must award attorneys’ fees.  Under the PPA, if a contractor meets the lower standard (“prevailing party”), a court can still decide not to award attorney’s fees, even if the court determines that the nonpaying party acted in bad faith.

In addition to these remedies, under CASPA, unpaid contractors or subcontractors can recover interest at a rate of one percent (1%) per month on any unpaid amount that is considered late under the contract or statute. Conversely, the PPA’s rate is determined by the Secretary of Revenue and thus, is less clear and fluctuates (currently, the rate is .25% per month).

Given the differences between the two payment statutes, those defending against payment claims on public projects – which can include owners, contractors, or, in some instances, subcontractors – will view this decision as a good one because the more favorable CASPA remedies are no longer available.  Those prosecuting such claims – which can include contractors or subcontractors – may perceive it as weakening their ability to induce payment.

It is important for owners, contractors, and subcontractors to know ahead of time what potential costs and legal standards apply to their construction projects.  These legal standards affect the likelihood of recovering costly expenses such as attorney’s fees, which, in turn, influences business decisions involving payment disputes.  While members of the construction industry will view this decision differently, they can all agree that the Court brought clarity to this previously unresolved issue.

Jason C. Tomasulo is Senior Counsel at Cohen Seglias Pallas Greenhall & Furman PC. He focuses his practice on construction law and represents owners, general contractors, subcontractors, suppliers and sureties.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Patrick Cullen, a summer associate with Cohen Seglias, contributed to this post.

Owners and contractors should be aware of a significant October, 2009 Pennsylvania Superior Court decision, Zimmerman v. Harrisburg Fudd I, L.P., which clarifies the standard for the award of post-judgment interest and attorneys’ fees under the Pennsylvania Contractor and Subcontractor Payment Act (CASPA). In this case, the Superior Court held that a contractor who has obtained a judgment against an owner under CASPA may recover post-judgment interest and penalties, as well as attorney’s fees and expenses incurred to collect the money owed.

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The Pennsylvania Contractor and Subcontractor Payment Act

CASPA is a Pennsylvania statute that dictates the proper timing for payment for construction work. CASPA also provides for interest, penalties (when appropriate) and attorneys’ fees when owners or contractors fail to comply with these payment obligations. According to the Zimmerman Court:

The underlying purpose of [CASPA] is to protect contractors and subcontractors… [and] to encourage fair dealing among parties to a construction contract . . . The statute provides rules and deadlines to ensure prompt payments, to discourage unreasonable withholding of payments, and to address the matter of progress payments and retainages. Under circumstances prescribed in the statute, interest, penalty, attorney fees and litigation expenses may be imposed on an owner, contractor or subcontractor who fails to make payment to a contractor or subcontractor in compliance with the statute.

Background of the Zimmerman Case

In this case, Zimmerman, a contractor, entered into a construction contract with Fudd, an owner, for the installation of floor and wall improvements for a new restaurant that Fudd was building. Following completion of its work, Zimmerman submitted an invoice for $10,108.70. Over 4 months later, he was still waiting for payment.

Refusing to wait any longer, Zimmerman elected to invoke CASPA, and filed a claim for breach of contract against Fudd. On the day the matter was scheduled for compulsory arbitration, the parties agreed to the Board’s entry of a stipulated award in favor of Zimmerman for $21,673.99, consisting of the $10,108.70 contract claim plus $11,565.29 of statutory interest, penalty and attorneys’ fees.

 

Continue Reading Pennsylvania Contractor and Subcontractor Payment Act: Contractor Awarded Attorneys’ Fees Incurred During Collection Proceeding