Purchasers of real estate that desire to retain a contractor to construct improvements on the property know that timely payment of contractor and subcontractors is of critical importance. Pennsylvania has enacted significant changes to the Pennsylvania Contractor and Subcontractor Payment Act (“CASPA”) that affect all construction contracts entered into on or after October 9, 2018.
Key Changes to CASPA
- The parties to a construction contract may not waive any provision of CASPA “by contract or other agreement.”
- CASPA as originally enacted provided that except as otherwise agreed by the parties, payment of a contractor’s invoices is due within 20 days. The amendments provide that if payment has not been made as provided in the construction contract, or if at least 30 calendar days have passed since the end of the billing period for which a payment has not been received by the contractor according to the terms of the construction contract, the contractor can provide written notice to the owner stating that payment has not been made. If at least 30 days pass subsequent to the contractor’s sending such notice and payment still has not been made, the contractor can provide 10 calendar days’ written notice of the contractor’s intent to suspend performance. If the construction contract sets forth a procedure that “exceeds” the foregoing procedure, the procedure set forth in the construction contract is unenforceable.
- The amendments include provisions relating to the owner’s authority to withhold payment. If an owner withholds payment for a deficiency item, the amount withheld must be reasonable, and the owner must notify the contractor of the deficiency item by a written explanation of the owner’s good faith reason within 14 calendar days of the date that the invoice is received. A failure to comply with this provision constitutes a waiver of the basis for the owner to withhold payment and necessitates payment to the contractor of the invoice in full.
- The amendments cover errors in documentation. As originally enacted, CASPA provided that if an invoice is filled out incorrectly or incompletely, the person who receives the incorrect invoice must give written notice to the person who sent the invoice within 10 working days of receipt of the notice. The amendments provide that after such written notice has been received by the person who sent the incorrect invoice, the person receiving the invoice is to pay the correct amount on the due date.
- The amendments also set forth changes relating to retainage. Upon reaching substantial completion of its scope of work, contractor or subcontractor may facilitate the release of retainage on their contracts before final completion by posting a maintenance bond with approved surety for 120% of the amount of retainage being held. The withholding of retainage for longer than 30 days after final acceptance of the work results in an owner’s, contractor’s, and subcontractor’s right to withhold payment.
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