Pennsylvania Enacts Significant Changes to Contractor-Subcontractor Payment Act
For the first time since 1994, Pennsylvania has enacted significant changes to the Contractor and Subcontractor Payment Act, otherwise known as CASPA. Owners, contractors, and subcontractors on private construction projects in Pennsylvania need to be aware of these changes, how the changes can and will impact their projects and, most importantly, what written notices are now expressly required to preserve payment positions or defenses.
CASPA generally provides for prompt payment from owners to contractors, and from contractors to subcontractors, on Pennsylvania construction projects. The Act provides a means for good faith withholding of payment for deficiency items and sets forth remedies for late and/or wrongfully withheld payments, including interest, penalties, and attorneys’ fees.
The 2018 revisions to CASPA fall mainly into the following six categories:
- No Waiver – Parties can no longer agree to waive CASPA’s protections in contracts.
- Suspension of Work – Contractors and subcontractors can suspend work, without penalty, until payment is received in accordance with contract terms/CASPA’s terms, but only if two written notices are provided: (a) notice of non-payment at least 30 calendar days after the end of the unpaid billing period; and (b) notice of intent to suspend performance provided at least 30 calendar days after the notice of non-payment and at least 10 calendar days before suspension of work.
- Withholding for Deficiency Items/Waiver of Rights to Withhold Payment – Payment can be withheld if the amount withheld is reasonable and if the withholding party provides written notice of its good faith basis for the withholding: (a) within 14 calendar days of the date an invoice is received (for owners) and (b) within the time set forth in the construction contract, or 14 calendar days from receipt of notice of a deficiency item (for contractors and subcontractors). Significantly, failure to provide timely notice of deficiency to withhold payment expressly waives the right to withhold and triggers payment of the invoice in full. Payments unrelated to the deficiency item and payments in excess of the amount of the deficiency item remain due and payable.
- Retainage – A contractor or subcontractor may seek full release of retainage at substantial completion of its scope of work if the contractor or subcontractor posts a maintenance bond in the amount of 120 percent of retainage being held.
- Withholding of Retainage – Retainage cannot be withheld longer than 30 days after final acceptance of work unless written notice of a deficiency item is provided and the amount withheld is reasonable for the deficiency item.
- Penalty for Wrongful Withholding – Amounts are not deemed to be wrongfully withheld if: (a) the amount bears a reasonable relationship to the value of a claim held in good faith and (b) the claim holder has complied with CASPA’s notice requirements for deficiency items.
The 2018 CASPA amendments take effect on October 10, 2018. The amendments provide increased protections for payment on private construction projects, but at the same time, impose new and additional notice requirements of which owners, contractors, and subcontractors must all be aware.