Real Estate Law

Legislative Update: Bill Introduced in the Pennsylvania House of Representatives to Amend the Contractor and Subcontractor Payment Act

By Jim Miller

House Bill 726 (the “Bill” or “HB 726”), [enhanced version available to lexis.com subscribers], seeks to make several amendments to the Pennsylvania Contractor and Subcontractor Payment Act, 73 P.S. § 501 et seq. (the “Act”), [enhanced version available to lexis.com subscribers], to benefit applicants for payment on a construction project. The Bill was introduced and referred to the Commerce Committee on March 6, 2015, and a public hearing on the Bill was scheduled to occur on May 15, 2015 at 10:00 a.m. at Union Station, 1 Progress Circle, Pottsville, Pennsylvania.

The Bill in its current form adds an express prohibition against the waiver of any provision of the Act. Any contractual provision purporting to waive rights or obligations under the Act is deemed void. While attorneys and other construction industry professional long presumed rights and obligations under the Act were not waivable, this provision would foreclose the issue. Nevertheless, this prohibition would not affect the rights or obligations that the Act expressly contemplates may be contractually modified.

Another proposed amendment is that the notice of a deficiency item and the good faith reason for withholding money must be provided in writing. As the Act currently stands, no such written requirement exists. Often, the party withholding payment asserts during litigation that it orally provided timely notice of the reason for withholding money to the claimant, while the claimant contends that it never received any notice of the reason for withholding or did not receive notice in a timely manner. This proposed amendment will help claimants avoid this factual dispute, and should promote dialogue between the parties as soon as the withholding occurs since the explanation of withholding must be articulated in writing.

The proposed amendments bolster this notice requirement further by expressly providing that the failure to provide timely, written notice of the reason for withholding will result in the “waiver of the basis to withhold payment” and require payment in full on the invoice. This proposed amendment clearly justifies the claimant’s right to penalties for bad faith withholding if timely, written notice is not provided the and party owing payment continues to withhold money.

The Bill also proposes to change the period in which a party receiving an invoice must inform the payment applicant of an error or defect in the invoice. The current period is 10 days after receipt of the invoice, which would be changed to 7 days under the Bill.

HB 726 also adds a provision that permits a contractor or subcontractor to post a maintenance bond for 120% of the amount of the retainage being withheld on its contract in order to have the retainage released after reaching substantial completion. This right is subject to the “approval of the party owed the retainage.”

If a party intends to withhold retainage for more than 30 days after final acceptance of the work, HB 726 requires that the party comply with the written notice requirements for providing an explanation of the good faith reason for the continued withholding.

Lastly, the Bill slightly modifies the penalties provisions of Section 12 of the Act by increasing the monthly penalty amount to 1.5%, and adding language that makes it clear that the party withholding payment must comply with the written notice requirements concerning good faith withholding of payment.
We will continue to update the progress of this Bill if it moves out of the Commerce Committee, or if any news of the likelihood of its passage is reported.

Copyright 2015 • Babst, Calland, Clements and Zomnir, P.C. • Two Gateway Center, Pittsburgh, PA 15222 • 412-394-5400 • LawBlogConstruction.com/ is publicly distributed by Babst, Calland, Clements and Zomnir, P.C., for the general information of its readers. It is not designed to be, nor should it be considered or used as, the sole source of analyzing and resolving legal problems and matters and is not intendde to give legal advice. If you have, or think you may have, a legal problem or issue relating to any of the matters discussed in the LawBlogConstruction.com, consult legal counsel.

For more information about LexisNexis products and solutions, connect with us through our corporate site