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PA Strengthens Law Governing Contractor and Subcontractor Payment Disputes

September 14, 2018Alerts Construction Law Alert

Pennsylvania law is poised to change in ways that will significantly strengthen the rights of contractors and subcontractors in private sector construction contract payment disputes.

On October 10, 2018, recent amendments to Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA) will take effect, bolstering the original intentions of the law to create statutory requirements for timely payments to contractors and subcontractors and provide procedures for remedying payment conflicts.

Construction professionals should make serious efforts to understand how these amendments may affect their business and update contracts to ensure compliance. Existing contracts may also need to be adjusted, particularly if additional agreements to a contract occur after the effective date.

The key changes are:

  • Any attempt to waive CASPA in a contract or agreements is prohibited.
  • If a contractor is not paid in accordance with the contract or in accordance with the otherwise applicable provisions of CASPA, the contractor can suspend performance.
  • An owner must give a reasonable explanation in writing for withholding a payment to justify the amount withheld, all within 14 days of the date on which an invoice is received. The amendments provide consequences for an owner who fails to meet this obligation. The owner’s failure will constitute a waiver and necessitate payment to the contractor in full. Additionally, the owner still has to pay the contractor for the balance not in dispute.
  • Regarding errors in an invoice, the owner has 10 days from the date of receipt of the invoice to notify the contractor of the error. The owner must pay the correct amount pursuant to the CASPA amendments.
  • As to retainage, a contractor can be paid retainage so long as it provides a maintenance bond from an “approved surety” for 120 percent of the retainage amount.

The amendments provide similar enhanced rights for subcontractors vis-à-vis contractors.

If you have any questions about the changes in the law, please contact Ronald Williams at [email protected] or 610.458.4994 or any member of Fox Rothschild's Construction practice group.