A mechanics' lien is a powerful tool for contractors, subcontractors, and lien arises under a statute - the Pennsylvania Mechanics' Lien Law of , is located within six (6) months of the date of the last work or materials. Yesterday, Governor Tom Wolf signed into law House Bill which make The Pennsylvania Contractor and Subcontractor Payment Act, known as item within seven calendar days of the date that the invoice is received. An examination of Pennsylvania's prompt payment laws, the rules and regulations related to . 73 § Contractor's and Subcontractor's Payment Obligations.
Pennsylvania Strengthens Contractor and Subcontractor Rights and Remed
Like the current statute, the amended act permits the parties to agree to contractual payment terms and timing for payment. But, the amended act now explicitly permits downstream entities to suspend performance if they are not being paid according to the contract, notwithstanding agreed contract terms to the contrary. Although there are nuances to consider with the interpretation and application of the amended act, the bottom line is that a downstream entity may now suspend performance as soon as 70 days following the end of the billing period12 for which payment of undisputed amounts or untimely disputed amounts has not been received.
To do so, the downstream entity must: Once a downstream entity suspends performance, it may continue the suspension until payment is received. It should be noted that the statute is unclear whether the payment amount required to restart the work includes the applicable statutory interest of 1 percent per month. Contract and Project Considerations Upstream entities should be prepared to properly and timely — within 14 days of receipt of an invoice — document withholdings of properly disputed payments to avoid the possibility of work suspensions.
Downstream entities may consider providing form notices at 30 days and 60 days after non-payment to maximize leverage and also should create the necessary documentation to support payment claims if needed. The current statute requires that the recipient of an incorrect or incomplete invoice provide written notice of the error to the person who sent the invoice within 10 working days.
The amended act clarifies that even after proper notice of alleged errors is provided, the correct amount of the invoice remains due on the same date as if the original invoice was correct.
PA State rules for Employee vs. Independent Contractor
Contract and Project Considerations Upstream entities should review contract provisions that adjust the payment date based on resubmitted invoices, as the amended act may render such provisions unenforceable. On the other hand, downstream entities may relax negotiations regarding incorrect invoicing and, instead, rely on the protections of the amended act.
The amended act permits contractors and subcontractors to facilitate the release of retainage upon substantial completion by posting a maintenance bond with an approved surety for percent of the amount of retainage being held. On the other hand, downstream entities no longer need to negotiate such provisions that will be unenforceable under the amended act.
The purpose of this alert is to provide notice to all participants in Pennsylvania private construction projects of the very significant statutory changes relating to payment disputes on these projects.
Implications These amendments level the construction playing field by empowering contractors and subcontractors to suspend performance of work for nonpayment without penalty, entitling them to explanations when payments are withheld, and authorizing them to seek payment of retainage before final completion of the project.
In order to perfect these new rights, however, contractors and subcontractors must satisfy the requirements set out in the amendments.How to Avoid Common Subcontracting Pitfalls
To perfect suspension, contractors and subcontractors must follow closely the terms of their contracts and the notice timeline set out above. While the amendments remove much of the risk associated with suspending performance, contractors and subcontractors must follow the conditions of suspension closely and provide notice in the form and manner required.
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Failure to do so may prevent the contractor or subcontractor from exercising its suspension rights. Owners, too, must provide the required notice and explanation when withholding payments.
No longer will a discrepancy over a single item of work permit withholding of the entire invoiced amount, nor will withholdings be permitted without explanation. The amendments provide new rights and requirements applicable to construction projects throughout Pennsylvania.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.