The Pennsylvania Contractor and Subcontractor Payment Act


73 P.S. § 501, et. seq. is known as the Contractor and Subcontractor Payment Act (“CASPA”)  is a statute that was enacted in 1994 “to cure abuses within the building industry involving payments from contractors to subcontractors and to encourage fair dealing among the parties to a construction contract.” Zimmerman v. Harrisburg Fudd I, L.P., 984 A.2d 497, 500–501 (Pa.Super.2009). CASPA is a remedial statute and it is accorded “liberal construction to effect its objects and to promote justice.” Id., at 502 n. 8.  CASPA applies to all construction projects in Pennsylvania involving the construction, except for residential construction of six or less units.  73 P.S. § 503(a).  CASPA requires that contractors pay subcontractors within fourteen days of receiving the subcontractor’s invoice. Recent amendments to CASPA, require that if a contractor is refusing to pay a subcontractor within fourteen days, it must give written notice to a subcontractor within that fourteen-day period. If a contractor fails to give written notice to the subcontractor within that fourteen-day timeframe, it waives all defenses to payment and payment is immediately owed. To further incentivize contractors to promptly pay their subcontractors, CASPA imposes 1% interest per month and 1% penalty per month on the amounts outstanding.  Finally, CASPA mandates the award of attorneys’ fees and expenses to a subcontractor that successfully pursues a claim under CASPA.

CASPA mandates payment within fourteen days

Section 507(b) of CASPA mandates that before a subcontract is executed, a contractor is required to disclose to a subcontractor the due date for receipt of payments from the owner of the Project.  73 P.S. § 507(b). If a contractor fails to disclose those due dates to a subcontractor then the contractor is deemed to have received payment from the owner.  Id.  Section 507(b) states, in relevant part, “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)1 were met by the owner.” 73 P.S. § 507(b). This means that when a contractor fails to disclose those due dates to a subcontractor the contractor cannot use lack of payment from the owner as an excuse for non-payment to its subcontractor.

Section 507(c) of CAPSA, mandates that a contractor shall pay a subcontractor within fourteen days of it receiving or being deemed as  receiving payment from the project owner. 73 P.S. § 507(c). In sum, if a contractor fails to disclose the dates it expects payment form the project owner, CASPA requires payment within fourteen days, whether a contractor has received a payment or not from its client.

 Waiving the defense that payment is withheld because of defective work

Under Section 504 of CASPA, “[p]erformance by a contractor or a subcontractor in accordance with the provisions of a contract shall entitle the contractor or subcontractor to payment from the party with whom the contractor or subcontractor has contracted.” 73 P.S. § 504. Under Section 511(b)(1) of CASPA, “if a contractor or subcontractor withholds payment from a subcontractor for a deficiency item, the contractor or subcontractor withholding payment must notify the subcontractor and the owner in writing of the good faith reason for the withholding within the time period specified in the construction contract or 14 calendar days of the date after receipt of the notice of the deficiency item.” 73 P.S. § 511(b)(1). CASPA defines a “deficiency item” as “[w]ork performed but which the owner, the contractor or the inspector will not certify as being completed according to the specifications of a construction contract.  73 P.S. § 502. Importantly, if a contractor fails to comply to Section 511(b)(1) it “shall constitute a waiver of the basis to withhold payment and necessitate payment to the subcontractor in full for the invoice.” 73 P.S. § 511(b)(2).

Comments Email Tweet Like LinkedIn

The New Jersey Prompt Payment Act


Like most states, New Jersey has as statute that seeks to incentive prompt payment to contractors and subcontractors.  New Jersey’s Pompt Payment Act is designed to further New Jersey’s “strong public policy to ensure that contractors performing construction work in New Jersey are paid promptly.” Erco Interior Sys., Inc. v. Nat’l Commercial Builders, Inc., 2019 WL 2004367, at *4 (App. Div. 2019). And to “level the playing field” to assure payment is made promptly.  New Jersey Governor’s Message, 2006 S.B. 1726/A.B. 3174 (the Prompt Payment Act).  Under the Prompt Payment Act, an award of attorneys fees, interest, and costs is mandatory.   As the Prompt Payment Act states “[i]n any civil action brought to collect payments pursuant to this section, the action shall be conducted inside of this State and the prevailing party shall be awarded reasonable costs and attorney fees.” N.J.S.A. 2A:30A–2(f). Additionally, the prevailing party shall be entitled to interest on the amount owed at the prime rate plus 1%. N.J.S.A. 2A:30A:2(c). Interest begins to accrue when payment is owed. Id.

Who is a subcontractor under the act?

The Prompt Payment Act defines a subcontractor “as any person who has contracted to furnish labor, materials or other services to a prime contractor in connection with a contract to improve real property.” N.J.S.A. § 2A:30A-1.  The Prompt Payment Act defines prime contractor “as a person who contracts with an owner to improve real property.” Id. Finally, the Prompt Payment Act broadly defines improve as:

“to build, alter, repair or demolish any structure upon, connected with, on or beneath the surface of any real property; to excavate, clear, grade, fill or landscape any real property; to construct driveways and private roadways on real property; to furnish construction related materials, including trees and shrubbery, for any of the above purposes; or to perform any labor upon a structure, including any design, professional or skilled services furnished by an architect, engineer, land surveyor or landscape architect licensed or registered pursuant to the laws of this State.”


How are attorneys fees determined under the statute?

When determining the amount of attorneys fees and costs under fee shifting statute, like the Prompt Payment Act, New Jersey courts use the “lodestar” method.  Rendine v. Pantzer, 141 N.J. 292, 334–35, 661 A.2d 1202, 1226 (1995)(“ the first step in the fee-setting process is to determine the “lodestar.”)  Under the lodestar method the Court first determines the reasonableness of the rates proposed by prevailing counsel. Id.  Then, the Court determines whether the time expended was reasonable. Id. at 1227. It is well settled that in determining the reasonableness of the hourly rate this Court should compare the proposed rate to that charged with “the rates prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation.” Rendine, 661 A.2d at 1227; Furst, 860 A.2d at 447 (“the court should evaluate the rate of the prevailing attorney in comparison to rates for similar services by lawyers of reasonably comparable skill, experience, and reputation in the community.”) In determining whether the time expended was reasonable the Court considers, the time “competent counsel reasonably would have expended to achieve a comparable result” and “circumstances to obtain that result.  Furst, 860 A.2d at 447. Among the circumstances to consider is opposing counsel’s conduct in obtaining the result.  Szczepanski v. Newcomb Med. Ctr., Inc., 141 N.J. 346, 366, 661 A.2d 1232, 1243 (1995). The hammer in the Prompt Payment Act comes from the ability to recover attorneys fees even when they are disproportional to the amount of underlying damages awarded. Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 23, 860 A.2d 435, 447 (2004)(“there need not be proportionality between the damages recovered and the attorney-fee award itself.”); Szczepanski v. Newcomb Med. Ctr., Inc., 141 N.J. 346, 366, 661 A.2d 1232, 1243 (1995)(“We decline to construe New Jersey’s fee-shifting statutes to require proportionality between damages recovered and counsel-fee awards.”

Comments Email Tweet Like LinkedIn

Retainage on Pennsylvania Public Contracts

Ah yes, retainage, what could represent your profit on a project and something frequently abused by owners on private and public projects alike.  Fortunately, Pennsylvania law offers public works contractors some protection from retainage abuse.  The Public Prompt Payment Act dictates when retainage can be withheld and when it must be released.  Agencies that fail to follow the Prompt Payment Act’s retainage rules can end up owing you interest, penalty, and attorneys fees.

The Prompt Payment Act’s Retainage Provisions

The Prompt Payment Act deals with retainage in two sections: 3921 and 3941.  Section 3921, 62 Pa.C.S.A. 3921, authorizes a government agency to withhold retainage.  But, in general, it limits the amount of retainage withheld to 10%, which is industry standard.  However, Section 3921 states that at 50% completion, the government agency must release 50% of the retainage withheld and retainage must be reduced to 5%.   There are a two caveats.  First, in order to receive the retainage reduction, there must not be a reason to hold retainage at 10%.  Second, where the Department of General Services (DGS) is the owner, retainage is capped at 6% and must be reduced to 3% at 50% completion.

Section 3941, 62 Pa.C.S.A. 3941, the project’s architect or engineer must make a final inspection of the work within 30 days of your final payment request.  If the work is found to be substantially complete, the government agency is required to make payment within forty-five days.  If the architect or engineer finds certain work is incomplete, it must identify that work in detail and the government agency may withhold 1.5 times the amount to complete that work.  The architect and engineer must also identify the estimated cost to complete the work.

The Prompt Payment Act’s Retainage Penalties

Under Section 3941(b), 10% interest is tacked on to retainage that is not paid within forty-five days of substantial completion.  Under Section 3935, if the government agency is found to have withheld retainage in bad faith, it may be liable for a additional interest at 1% per month and reasonable attorneys fees.

Payment of Retainage to Subcontractors

The Prompt Payment Act contains an important provision regarding payment of retainage to subcontractors.  Prime contractors are required to pay retainage to subcontractors within twenty days of receiving retainage from the owner.  Therefore, if you are a subcontractor and have not received at least a 50% retainage reduction and you know the project is more than 50% complete, you need to start asking questions of the prime contractor.


Comments Email Tweet Like LinkedIn

Superior Court Takes First Step Toward Making Payment Act a Nuclear Weapon

Despite the Pennsylvania Contractor and Subcontractor Payment Act’s threats of penalties of 1% interest per month, 1% penalty per month, and attorneys fees, the payment abuses it was intended to remedy remain a problem.  Generally, when an owner is threatened with a Payment Act claim they hardly run for their check books.  However, a recent unpublished opinion from the Superior Court, Scungio Borst & Assoc. v. Shurs Lane Developers, LLC, sets the stage to change everything.   There the Superior Court opens the door to holding officers and executives of owners entities personally liable for damages under CAPSA potentially making CASPA a nuclear device in a contractor’s arsenal in getting paid.

In that case, the Superior Court overturned summary judgment entered in favor of a individual member of an owner entity LLC on a contractors CASPA claim against him.  The plaintiff was a general contractor of a condominium project.  The defendants were the owner entity LLC and one of its 50% owners.  The general contractor brought claims for breach of contract and under CASPA seeking payment for over $1 million in unpaid change orders from defendants.  Specifically, the general contractor alleged that the individual had personally directed that the change order work be performed and that assured the general contractor that payment would be forth coming.  The trial court granted summary judgment in favor of the individual member of the owner entity and the general contractor appealed.

The general contractor argued that CASPA’s definition of owner made the individual member who authorized the change orders personally liable and the Superior Court agreed.  The Superior Court looked to the definition of an “owner” under CASPA.  Section 502 of CASPA defines an owner as “a person who has an interest in the real property that is improved and who ordered the improvements to be made [and] includes . . . agents of the owner acting with their authority.”  Accordingly, it remanded the case to the trial court for further proceedings.

Even though it is an unpublished opinion, and thus not binding law in Pennsylvania, the case is obviously significant.  Normally, individuals are not liable for corporate debts unless a plaintiffs can prevail under a theory of piercing the corporate veil. This is no easy task and usually requires proof that an individual used the corporate entity to commit fraud or that the corporate entity was a mere sham (i.e. it lacked capitalization and failed to follow corporate formalities.)  However, the Scungio case indicates that courts may be receptive to holding individual officers and executives personal liable under CASPA without showing any intent to defraud.

Holding a company potentially liable for the significant penalties is one thing.  However, when an individual’s personal assets are now at stake for those same penalties, owners facing CASPA litigation may think differently.

Comments Email Tweet Like LinkedIn