PRINTER'S NO. 3198
No. 2460 Session of 1992
INTRODUCED BY ITKIN, FAIRCHILD, VAN HORNE, OLASZ, LINTON,
HALUSKA, STEIGHNER, PESCI, HANNA, HERSHEY, DALEY, KOSINSKI,
GIGLIOTTI, STISH, LaGROTTA, TRELLO, J. TAYLOR, WAMBACH,
TIGUE, JAMES, BILLOW, MELIO, RICHARDSON, SALOOM AND COLAIZZO,
MARCH 11, 1992
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE, MARCH 11, 1992
AN ACT
1 Requiring timely payment to certain contractors and
2 subcontractors; and providing remedies to contractors and
3 subcontractors.
4 TABLE OF CONTENTS
5 Section 1. Short title.
6 Section 2. Definitions.
7 Section 3. Application of act.
8 Section 4. Performance by contractor or subcontractor.
9 Section 5. Owner's payment obligations.
10 Section 6. Contractor's and subcontractor's payment
11 obligations.
12 Section 7. Errors in documentation.
13 Section 8. Retainage.
14 Section 9. Prepayment; advance payment.
15 Section 10. Withholding payment for good faith claim.
16 Section 11. Penalty and attorney fee.
17 Section 12. Contracts involving Federal aid.
1 Section 13. Applicability.
2 Section 14. Effective date.
3 The General Assembly of the Commonwealth of Pennsylvania
4 hereby enacts as follows:
5 Section 1. Short title.
6 This act shall be known and may be cited as the Contractor
7 and Subcontractor Payment Act.
8 Section 2. Definitions.
9 The following words and phrases when used in this act shall
10 have the meanings given to them in this section unless the
11 context clearly indicates otherwise:
12 "Billing period." A payment cycle agreed to by the parties
13 or, in the absence of an agreement, the calendar month within
14 which work is performed.
15 "Construction contract." An agreement, whether written or
16 oral, to perform work on any real property located within this
17 Commonwealth.
18 "Contractor." A person who contracts with an owner to
19 improve real property.
20 "Delivery." Transmittal to an addressee, including, but not
21 limited to, delivery by first class or registered mail, hand
22 delivery or transmission by facsimile machine. Mail, properly
23 addressed, shall be deemed delivered three days from the day it
24 was sent.
25 "Improve." To build, effect, alter, repair or demolish any
26 improvement upon, connected with, or on or beneath the surface
27 of any real property, to excavate, clear, grade, fill or
28 landscape any real property, to construct driveways and private
29 roadways, to furnish materials, including trees and shrubbery
30 for any of these purposes, or to perform any labor upon
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1 improvements. The term includes design or other professional or
2 skilled services furnished by architects, engineers, land
3 surveyors and landscape architects licensed by the Commonwealth.
4 "Improvement."
5 (1) All or any part of a building or structure.
6 (2) The erection, alteration, demolition, excavation,
7 clearing, grading or filling of real property.
8 (3) Landscaping, including the planting of trees and
9 shrubbery, and constructing driveways and private roadways on
10 real property.
11 "Owner." A person who has an interest in the real property
12 that is improved and who ordered the improvement to be made. The
13 term includes successors in interest of the owner and agents of
14 the owner acting with their authority.
15 "Real property." Real estate that is improved, including
16 lands, leaseholds, tenements and hereditaments, and improvements
17 placed thereon.
18 "Subcontractor." A person who has contracted to furnish
19 labor or materials to, or has performed labor for, a contractor
20 or another subcontractor in connection with a contract to
21 improve real property.
22 Section 3. Application of act.
23 (a) Number of residential units.--This act shall not apply
24 to improvements to real property which consists of six or fewer
25 residential units.
26 (b) Owner's exclusion.--This act shall not apply to
27 contracts for the purchase of materials by a person performing
28 work on his or her own real property.
29 Section 4. Performance by contractor or subcontractor.
30 (a) Entitlement to payment.--Performance by a contractor or
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1 a subcontractor in accordance with the provisions of a contract
2 shall entitle the contractor or subcontractor to payment from
3 the party with whom the contractor or subcontractor has
4 contracted.
5 (b) Conditions for payment.--Payment by the owner to a
6 contractor is not a condition precedent for payment to a
7 subcontractor, and payment by a contractor to a subcontractor is
8 not a condition precedent for payment to any other
9 subcontractor. An agreement that is contrary to this subsection
10 shall be unenforceable.
11 Section 5. Owner's payment obligations.
12 (a) Construction contract.--The owner shall pay the
13 contractor strictly in accordance with terms of the construction
14 contract.
15 (b) Absence of payment term.--In the event that the
16 construction contract does not contain a term governing the
17 terms of payment, the contractor shall be entitled to invoice
18 the owner for progress payments at the end of the billing
19 period. The contractor shall be entitled to submit a final
20 invoice for payment in full upon completion of the agreed-upon
21 work.
22 (c) Time for payment.--Except as otherwise agreed by the
23 parties, payment of interim and final invoices shall be due from
24 the owner 20 days after the end of a billing period or 20 days
25 after delivery of the invoice, whichever is later.
26 (d) Interest.--Except as otherwise agreed by the parties, if
27 any progress of final payment to a contractor is not paid within
28 seven days of the due date established in subsection (c), the
29 owner shall pay the contractor, beginning on the eighth day,
30 interest at the rate of 1% per month or fraction of a month on
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1 the balance that is at the time due and owing.
2 Section 6. Contractor's and subcontractor's payment
3 obligations.
4 (a) Entitlement to payment.--Performance by a subcontractor
5 in accordance with the provisions of the contract shall entitle
6 the subcontractor to payment from the party with whom the
7 subcontractor has contracted.
8 (b) Disclosure of payment dates.--Notwithstanding any
9 agreement to the contrary, a contractor or subcontractor shall
10 disclose to a subcontractor, before a subcontract is executed,
11 the due date for receipt of payments from the owner.
12 Notwithstanding any other provision of this act, if a contractor
13 or subcontractor fails to accurately disclose the due date to a
14 subcontractor, the contractor or subcontractor shall be
15 obligated to pay the subcontractor as though the due dates
16 established in section 5(c) were met by the owner.
17 (c) Time for payment.--Notwithstanding any agreement to the
18 contrary, when a subcontractor has performed in accordance with
19 the provisions of the contract, a contractor shall pay to the
20 subcontractor, and each subcontractor shall in turn pay to the
21 subcontractor's subcontractors, the full or proportional amount
22 received for each such subcontractor's work and materials, based
23 on work completed or service provided under the subcontract,
24 seven days after receipt of each progress or final payment or
25 seven days after receipt of the subcontractor's invoice,
26 whichever is later.
27 (d) Interest.--Notwithstanding any agreement to the
28 contrary, if any progress or final payment to a subcontractor is
29 delayed beyond the date established in subsection (b) or (c),
30 the contractor or subcontractor shall pay the subcontractor
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1 interest, beginning on the next day, at the rate provided for in
2 section 5(d) on the balance that is at the time due and owing.
3 Section 7. Errors in documentation.
4 (a) Notice of defect.--If an invoice is filled out
5 incorrectly or incompletely or if there is any other defect or
6 impropriety in an invoice, the person who receives the invoice
7 shall give written notice to the person who sent the invoice
8 within ten working days of receipt of the invoice.
9 (b) Change in billing period.--If an error on the invoice is
10 corrected by the person who sent the invoice, the date on which
11 the corrected invoice is delivered shall be deemed the end of
12 the billing period for the purposes of this act.
13 (c) Waiver of defect.--If notice of a defect is not given in
14 accordance with subsection (a), the defect shall be deemed
15 waived.
16 Section 8. Retainage.
17 (a) Time for payment.--If payments under a construction
18 contract are subject to retainage, any amounts which have been
19 retained during the performance of the contract and which are
20 due to be released to the contractor upon final completion shall
21 be paid within 30 days after final acceptance of the work.
22 (b) Agreement between contractor and subcontractor.--If an
23 owner is not withholding retainage, a contractor may withhold
24 retainage from a subcontractor in accordance with their
25 agreement. The retainage shall be paid within 30 days after
26 final acceptance of the work.
27 (c) Payment of retainage to subcontractors.--Notwithstanding
28 any agreement to the contrary, a contractor shall pay to the
29 contractor's subcontractors, and each subcontractor shall in
30 turn pay to the subcontractor's subcontractors, within seven
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1 days after receipt of the retainage, the full amount due each
2 subcontractor.
3 (d) Withholding acceptance or failure to pay retainage.--If
4 an owner, contractor or subcontractor unreasonably withholds
5 acceptance of work or fails to pay retainage as required by this
6 section, the owner, contractor or subcontractor shall be subject
7 to the payment of interest at the rate established in section
8 5(d) on the balance due and owing on the date acceptance was
9 unreasonably withheld or the date the retainage was due and
10 owing, whichever is applicable. The owner, contractor or
11 subcontractor shall also be subject to the provisions of section
12 11.
13 Section 9. Prepayment; advance payment.
14 This act shall not be construed to prohibit an owner,
15 contractor or subcontractor from making advance payments or
16 progress payments, or from prepaying if an agreement or other
17 circumstances make such payment appropriate. All payments shall
18 be made when they are due and owing and if not so made shall
19 bear interest at the rate provided for in section 5(d) from the
20 date payment was due. The person who fails to make timely
21 payment shall also be subject to the provisions of section 11.
22 Section 10. Withholding payment for good faith claim.
23 This act shall not prevent an owner, contractor or
24 subcontractor from withholding payment in whole or in part under
25 a construction contract in an amount equal to the value of any
26 good faith claims against a contractor or subcontractor,
27 including claims arising from unsatisfactory job progress,
28 defective construction, disputed work or third-party claims.
29 Section 11. Penalty and attorney fee.
30 (a) Penalty for failure to comply with act.--If arbitration
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1 or litigation is commenced to recover payment due under this act
2 and it is determined that an owner, contractor or subcontractor
3 has failed to comply with the payment terms of this act, the
4 arbitrator or court shall award, in addition to all other
5 damages due, a penalty equal to 1% per month of the amount that
6 was wrongfully withheld. An amount shall not be deemed to have
7 been wrongfully withheld to the extent it bears a reasonable
8 relation to the value of any claim held in good faith by the
9 owner, contractor or subcontractor against whom the contractor
10 or subcontractor is seeking to recover payment.
11 (b) Award of attorney fee and expenses.--Notwithstanding any
12 agreement to the contrary, the substantially prevailing party in
13 any proceeding to recover any payment under this act shall be
14 awarded a reasonable attorney fee in an amount to be determined
15 by the court or arbitrator, together with expenses.
16 Section 12. Contracts involving Federal aid.
17 If any provision of this act conflicts with a Federal statute
18 or regulation or with conditions attached to the receipt of
19 Federal aid, this act shall not operate to prevent receipt of
20 Federal aid.
21 Section 13. Applicability.
22 This act shall apply to construction contracts executed on or
23 after the effective date of this act.
24 Section 14. Effective date.
25 This act shall take effect in 60 days.
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