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PRINTER'S NO. 1748
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1387
Session of
2017
INTRODUCED BY MALONEY, A. HARRIS, MOUL, LAWRENCE, ZIMMERMAN,
PETRI, ELLIS AND D. COSTA, MAY 18, 2017
REFERRED TO COMMITTEE ON COMMERCE, MAY 18, 2017
AN ACT
Amending the act of February 17, 1994 (P.L.73, No.7), entitled
"An act requiring timely payment to certain contractors and
subcontractors; and providing remedies to contractors and
subcontractors," further providing for application of act,
for owner's withholding of payment for good faith claims, for
contractor's and subcontractor's payment obligations, for
errors in documentation, for retainage, for contractor's
withholding of payment for good faith claims and for penalty
and attorney fee.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Sections 3, 6, 7, 8, 9, 11 and 12 of the act of
February 17, 1994 (P.L.73, No.7), known as the Contractor and
Subcontractor Payment Act, are amended to read:
Section 3. Application of act.
[(a) Number of residential units.--This act shall not apply
to improvements to real property which consists of six or fewer
residential units which are under construction simultaneously.]
(b) Owner's exclusion.--This act shall not apply to
contracts for the purchase of materials by a person performing
work on his or her own real property.
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(c) Prohibition on waiver.--Unless specifically authorized
under this act, parties to a contract or other agreement may not
waive a provision of this act by contract or other agreement.
Section 6. Owner's withholding of payment for good faith
claims.
(a) Authority to withhold.--The owner may withhold payment
for deficiency items according to the terms of the construction
contract. The owner shall pay the contractor according to the
provisions of this act for any item which appears on the invoice
and has been satisfactorily completed.
(b) Notice.--[If]
(1) Except as provided under section 9, if an owner
withholds payment from a contractor for a deficiency item,
[it] the amount withheld shall be reasonable and the owner
shall notify the contractor of the deficiency item by a
written explanation of its good faith reason within seven
calendar days of the date that the invoice is received.
(2) Failure to comply with paragraph (1) shall
constitute a waiver of the basis to withhold payment and
necessitate payment of the contractor in full for the
invoice.
(3) If an owner withholds payment from a contractor for
a deficiency item, the owner shall remit payment to the
contractor for each other item that has been satisfactorily
completed under the construction contract.
Section 7. Contractor's and subcontractor's payment
obligations.
(a) Entitlement to payment.--Performance by a subcontractor
in accordance with the provisions of the construction contract
shall entitle the subcontractor to payment from the party with
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whom the subcontractor has contracted.
(b) Disclosure of payment dates.--A contractor or
subcontractor shall disclose to a subcontractor, before a
subcontract is executed, the due date for receipt of payments
from the owner. Notwithstanding any other provision of this act,
if a contractor or subcontractor fails to accurately disclose
the due date to a subcontractor, the contractor or subcontractor
shall be obligated to pay the subcontractor as though the due
dates established in section 5(c) were met by the owner. This
subsection shall not apply to a change in due dates because of
conditions outside of the contractor's control, including, but
not limited to, design changes, change orders or delays in
construction due to weather conditions.
(c) Time for payment.--When a subcontractor has performed in
accordance with the provisions of the construction contract, a
contractor shall pay to the subcontractor, and each
subcontractor shall in turn pay to the subcontractor's
subcontractors, the full or proportional amount received for
each such subcontractor's work and materials, based on work
completed or service provided under the subcontract, 14 days
after receipt of each progress or final payment or 14 days after
receipt of the subcontractor's invoice, whichever is later.
Payment shall be made under this section unless it is being
withheld under section 11.
(d) Interest.--If any progress or final payment to a
subcontractor is delayed beyond the date established in
subsection (b) or (c), the contractor or subcontractor shall pay
the subcontractor interest, beginning on the next day, at the
rate provided for in section 5(d) on the balance that is at the
time due and owing.
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Section 8. Errors in documentation.
(a) Notice of [defect] errors in invoice.--If an invoice is
filled out incorrectly or incompletely or if there is any other
defect or impropriety in an invoice, the person who receives the
incorrect invoice shall give written notice to the person who
sent the incorrect invoice within [ten working] five calendar
days of receipt of the invoice.
[(b) Payment of amount incurred.--The person receiving the
incorrect invoice shall pay the amount actually incurred on the
due date in accordance with the provisions of this act.]
(b) Payment for invoice with error.--Once written notice has
been received by the person who sent the incorrect invoice, the
person receiving the invoice shall pay the correct amount of the
invoice on the due date in accordance with this act.
Section 9. Retainage.
(a) Time for payment.--If payments under a construction
contract are subject to retainage, any amounts which have been
retained during the performance of the contract and which are
due to be released to the contractor upon final completion shall
be paid within 30 days after final acceptance of the work.
(a.1) Posting of security in lieu of retainage.--Upon
reaching substantial completion of its own scope of work, a
contractor or subcontractor may facilitate the release of
retainage on its contract before final completion of the project
by posting a maintenance bond with approved surety for 120% of
the amount of retainage being held.
(b) Agreement between contractor and subcontractor.--If an
owner is not withholding retainage, a contractor may withhold
retainage from a subcontractor in accordance with their
agreement. The retainage shall be paid within 30 days after
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final acceptance of the work.
(c) Payment of retainage to subcontractors.--A contractor
shall pay to the contractor's subcontractors, and each
subcontractor shall in turn pay to the subcontractor's
subcontractors, within 14 days after receipt of the retainage,
the full amount due each subcontractor.
(d) Withholding acceptance or failure to pay retainage.--
Withholding of retainage for longer than 30 days after final
acceptance of the work shall be subject to the obligations
imposed upon the owner, contractor or subcontractor in section
6(b) or 11(b). If an owner, contractor or subcontractor
unreasonably withholds acceptance of work or fails to pay
retainage as required by this section, the owner, contractor or
subcontractor shall be subject to the payment of interest at the
rate established in section 5(d) on the balance due and owing on
the date acceptance was unreasonably withheld or the date the
retainage was due and owing, whichever is applicable. The owner,
contractor or subcontractor shall also be subject to the
provisions of section 12.
Section 11. Contractor's and subcontractor's withholding of
payment for good faith claims.
(a) Authority to withhold.--The contractor or subcontractor
may withhold payment from any subcontractor responsible for a
deficiency item. The contractor or subcontractor shall pay any
subcontractor according to the provisions of this act for any
item which appears on the invoice and has been satisfactorily
completed.
(b) Notice.--[If]
(1) Except as provided under section 9, if a contractor
or subcontractor withholds payment from a subcontractor for a
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deficiency item, [it] the contractor or subcontractor
withholding payment must notify the subcontractor [or
supplier and the owner of the reason within] and the owner in
writing of the good faith reason for the withholding within
the time period specified in the construction contract or
seven calendar days of the date after receipt of the notice
of the deficiency item.
(2) Failure to comply with paragraph (1) shall
constitute a waiver of the basis to withhold payment and
necessitate payment of the subcontractor in full for the
invoice.
(c) Amount of withholding.--If a contractor or subcontractor
withholds payment from a subcontractor for a deficiency item,
the contractor or subcontractor withholding payment shall remit
payment to the subcontractor for each other item that has been
satisfactorily completed under the construction contract.
Section 12. Penalty and attorney fee.
(a) Penalty for failure to comply with act.--
(1) If arbitration or litigation is commenced to recover
payment due under this act and it is determined that an
owner, contractor or subcontractor has failed to comply with
the payment terms of this act, the arbitrator or court shall
award, in addition to all other damages due, a penalty equal
to 1% per month of the amount that was wrongfully withheld.
(2) An amount shall not be deemed to have been
wrongfully withheld [to the extent it] if all of the
following apply:
(i) The amount bears a reasonable relation to the
value of any claim held in good faith by the owner,
contractor or subcontractor against whom the contractor
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or subcontractor is seeking to recover payment.
(ii) The claim holder complies with section 6 or 11.
(b) Award of attorney fee and expenses.--Notwithstanding any
agreement to the contrary, the substantially prevailing party in
any proceeding to recover any payment under this act shall be
awarded a reasonable attorney fee in an amount to be determined
by the court or arbitrator, together with expenses.
Section 2. This act shall take effect in 120 days.
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