The construction industry can, on occasion, be cut-throat. Obviously, contractors and subcontractors want to be paid for work that they have performed. On the other hand, owners don't want to have to pay for incomplete or deficient work. Accordingly, in construction disputes, the timing of when payments are due has often been a litigated issue.
In an attempt to bring some clarity to these points, and at the same time to treat all parties evenhandedly, in 1994, the Pennsylvania legislature enacted The Pennsylvania Contractor/Subcontractor Payment Act. (73 P.C.S.A. § 501 et seq). Generally, this Act addresses the timing of payments when a construction or supply contract is silent on the subject. The Act also, significantly, provides for interest, penalties, and attorneys' fees for failure to comply with its provision.
The Act applies to all commercial construction projects and all residential projects over six units. It does not apply to small residential projects or to do-it-yourselfers. In fact, the Act includes a specific exception for any work done by an owner on his own property.
To summarize, in the event that a contract is silent on the timing of payment, the Act requires that an owner pay a contractor within 20 days after the end of the billing period or the receipt of an invoice, whichever is later. It also provides the a contractor pay a subcontractor within 14 days after the contractor's receipt of each progress or final payment request, or 14 days after the subcontractor's invoice, whichever is later.
With respect to retainage, the Act provides that owners and contractors must pay contractors and subcontractors within 30 days after final acceptance of the work. However, with respect to subcontractor payments, the Act also includes a "pay-when-paid" provision that requires payment within 14 days after a contractor receives payment for particular items.
In an effort to remain evenhanded, the legislature also included a provision providing that, in spite of requirements for payments being in a timely fashion, owners and contractors may withhold payments for deficiencies.
Perhaps the most important aspects of the Act are the provisions providing consequences if payments requirements are not met. Initially, the Act provides that for any wrongfully withheld payments, an additional 1% interest per month will be added. Moreover, the Act also provides for penalties in the amount of 1% per month for any amount wrongfully withheld by an owner or general contractor. Accordingly, there is a potential recovery of 24% per annum for any wrongfully withheld payments.
Contractors and subcontractors should be cautious, however, because the Act also provides that any "substantially prevailing party" in a claim brought under the Act is entitled to a recovery of attorneys' fees. Accordingly, if a tribunal finds that an owner or general contractor has properly withheld payment, the party seeking payment could be held liable for attorneys' fees. All parties should be aware that the attorneys' fees provisions of the Act apply regardless of contrary contract provisions.
The Act is a valuable tool for contractors and subcontractors to obtain payment for properly done work. However, it also provides a level of protection to owners and contractors who may need to withhold payments in order to assure that the deficient work is properly completed. PSMN ® attorneys are well versed in this law and can provide guidance in dealing with these issues.
For more information, call 412-288-4000 or send our PSMN ® Pittsburgh litigation attorneys an e-mail by completing the contact form on this website.