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The Babst Calland Construction Law Blog contains articles published by the attorneys at Babst Calland to provide timely legal and business information on issues important to the construction industry.


Governor Wolf Signs Amendments to CASPA into Law

On June 12, 2018, Governor Wolf signed HB 566, as amended, into law.  The new law makes some significant changes to the Contractor and Subcontractor Payment Act (“CASPA”) and it will take effect on October 10, 2018 (120 days after it was signed). The new law has the following effect:
  • Any contract provision purporting to waive rights afforded under CASPA is unenforceable unless waiver of the right is expressly permitted by CASPA (for example, CASPA permits parties to modify by contract the CASPA right to interest at a rate of 1% per month).
  • For contracts lacking a provision permitting suspension of work for nonpayment, contractors and subcontractors now have a statutory right to suspend work for nonpayment under the following conditions:
    • Payment has not been made within the period of time required by the contract or the statutory period set by CASPA, whichever is applicable;
    • After 30 calendar days have passed since payment was due, written notice of the nonpayment is sent via email or postal service to the person who owes the payment or their authorized agent; and,
    • After 30 calendar days since the written notice of nonpayment was sent, written notice is sent via certified mail (to the person who owes payment or his/her authorized agent) of the intent to suspend performance in 10 calendar days if payment is not made.
    • Thus, under this statutory right, work may be suspended no earlier than 70 days after payment was due.
    • Parties can contract for a shorter period of time to suspend performance after nonpayment.  Conversely, any suspension of work provision that provides for a longer period of time (or does not permit suspension in the event of nonpayment) is unenforceable.
  • Good faith withholding of payment now expressly requires written explanation of the reason for the withholding within 14 days of receipt of an invoice.
  • Most notably, the Act expressly provides that failure to provide a written explanation within 14 days will constitute a waiver of the right to withhold and require payment of the invoiced amount in full.  As always, the amount of the withholding must be reasonable (i.e. a reasonable estimate of the cost to correct the deficient work or the damages sustained).
  • These written notice of deficiencies requirements must also be followed for retainage to be withheld beyond 30 days of final acceptance of the work; otherwise, the right to withhold retainage is waived.
  • Delay of payment due to an error in an invoice is now expressly prohibited.  CASPA has always required written notice of invoice errors to be sent within 10 working days of receipt of an invoice.  The Act now makes it clear that, once the notice of the error is received by person who sent the mistaken invoice, payment of the correct invoice amount must be made when due regardless of whether (or when) the invoice is corrected.
  • Finally, contractors and subcontractors now have the express right to payment of retainage upon substantial completion if they post a maintenance bond for 120% of the retainage amount.
Courts likely will construe this Act to not apply to contracts entered before October 10, 2018, but we suggest that owners, contractors and subcontractors begin complying on that date with any new duties imposed on them to avoid possibly waiving rights or arguably becoming subject to the remedies provided by CASPA. We have drafted a red-lined copy of CASPA that shows the revisions made by this law and it is available for you to review here.

Tagged:  CASPA, Industry news

Babst Calland Annual Construction Law Year in Review Seminar

It is not too late to RSVP to Babst Calland’s annual Construction Law Year in Review seminar, which will be held on Thursday, March 22, 2018 at the Doubletree Hotel in Greentree, beginning with a continental breakfast at 7:30 a.m., followed by the seminar from 8:00 a.m. to 10:00 a.m.  Speakers will include Marc Felezzola, Kurt Fernsler, Matt JamesonMolly Meacham, Esther Mignanelli, Jim Miller, and Rich Saxe.  This seminar qualifies for two (2) PA CLE credits.  We hold this annual seminar as a service to our clients and prospective clients.  This complimentary seminar will provide an overview of 2017′s significant construction law developments (both statutory and case-law). This year’s topics include:  revisions to the AIA contract documents, recent mechanics' liens cases, proposed amendments to the Contractor and Subcontractor Payment Act, piercing the corporate veil, employment and labor law issues impacting the construction industry, and the legal impact of the recently proposed steel tariffs. For more information or to RSVP, please e-mail Matt Jameson.


Payment Bond Fraud in Pennsylvania – Why Subcontractors Should Request Copies of Payment Bonds When Signing Subcontractors for Public Projects

The News Story The Times-Tribune reports that a Lackawanna County insurance agent recently pleaded guilty to fraud for accepting premiums for payment bonds from contractors but never actually procuring those payment bonds from a surety.  This resulted in situations where public works projects were performed without any payment bond providing security for the subcontractors.  Pennsylvania’s Public Works Contractors' Bond Law of 1967 (i.e. the "Little Miller Act") requires payment bonds for public projects but imposes no penalty on the public project owner for failing to ensure the requisite bonds are posted.  Thus, Pennsylvania public project owners have no incentive to check to make sure its primes post the required bonds and things like the fraud described in the letter can easily go undetected.   The Practical Lesson for Subcontractors Accordingly, this story is a good reminder to subcontractors in Pennsylvania about the need to obtain a copy of the payment bond for a public project at the time of subcontract formation rather than waiting until when a dispute arises.  Such action will help protect against the type of fraud described in the Times-Tribune report by revealing the lack of payment bond before the subcontractor finds itself in a compromised position.

Tagged:  Construction Contracts, Construction Economics, Industry news, Payment Bond, Performance Bond, Subcontractors, Surety

Pennsylvania Construction Notices Directory Experiencing Growing Pains

As this Blog previously reported, Pennsylvania’s Mechanics’ Lien Law underwent significant changes beginning January 1, 2017.  Among those changes was the introduction of an online Construction Notices Directory (the “Directory”) which owners, contractors, and subcontractors must use to file certain notices in order to maintain their mechanics’ lien rights on certain “searchable projects” consisting of the construction, alternation or repair of an improvement costing at least $1.5 million.  The Directory is maintained and managed by the Pennsylvania Department of General Services (“DGS”), and supposedly includes records of every project filed with the Directory since the amendments became effective at the beginning of this year. However, the Directory’s list of projects currently includes entries for exactly 100 projects dating back to September of 2017.  Does this mean that no notices were filed for searchable projects before September of 2017?  No, it does not.  Babst Calland contacted DGS regarding this issue and was informed that only 100 projects can be listed on the Directory at a given time.  Therefore, as new projects are listed on the Directory, older projects – which may still be under construction and therefore require the filing of additional notices – are no longer listed.  So what should a Directory user do if the project for which they need to file a notice is not among the 100 listed on the Directory? In order to view these “unlisted” projects, a Directory user must first click the “SEARCH” tab, enter “0” (without quotation marks) into the search bar, and then press enter or click the magnifying glass icon.  As of the date of this entry, following these instructions allows a Directory user to view over 40 “unlisted projects” dating back to December of 2016to which the user would not otherwise have access. First and second tier subcontractors should therefore be aware that the Directory does not automatically list every “searchable project” for which a Notice of Commencement has been filed.  In fact, the Directory only lists 100 projects at any given time unless the user executes a search for “0”.  Therefore, subcontractors who are uncertain of whether a project is listed on the Directory and wish to file a Notice of Furnishing or Nonpayment should follow this extra step to (1) determine if the project is listed and (2) file the applicable notices. Babst Calland has made DGS aware of the numerous potential consequences of this issue, but is uncertain if or when a fix will occur. If you have questions regarding the Pennsylvania Construction Notices Directory or how to view “unlisted” projects, please contact attorney JD Mazzocco at jmazzocco@babstcalland.com, or 412-394-5451.

Tagged:  Construction Contracts, Mechanics' lien, Subcontractors

Bill Seeking to Create a Public Notice Requirement for the use of Project Labor Agreements

On August 30, 2017, Representative Aaron Bernstine (R., Beaver, Butler, and Lawrence Counties) introduced House Bill 1751, which seeks to create a public notice requirement for public works project labor agreements (PLAs). The proposed law would require the contracting public agency to post notice of a PLA on its website at least 20 days prior to the solicitation of bids on a public project that the PLA will apply to. The Bill also proposes to nullify a PLA when notice is not provided.  The Bill is currently being considered by the House Committee on Labor and Industry. Babst Calland will continue to monitor HB 1751 as well as other proposed legislation that may impact the construction industry and post updates on this Blog whenever they become available.

Tagged:  Proposed Legislation, Public Construction Projects

Legal Insights into Oil and Gas Infrastructure Projects and Additional Insureds in Property Damage Claims

An August 21, 2017 article in the The Legal Intelligencer, co-authored by Babst Calland Attorneys Dave White and Esther Soria Mignanelli, addresses the impacts of the new Pennsylvania Mechanics’ Lien State Construction Notices Directory on oil and gas infrastructure projects. To view the full article, click here.  

Tagged:  Contract Clauses, Lien Law, Pipeline construction, Public Construction Projects, Subcontractors, Surety

Bill Seeking to Amend Pennsylvania’s Private Project Prompt Payment Act Passes House Vote

On June 20, 2017, Pennsylvania House of Representatives passed House Bill 566, which proposes amendments to Pennsylvania's Contractor and Subcontractor Payment Act ("CASPA"), by a 168 to 26 vote.  The bill introduced by Representative Santora is very similar to HB 1387 (discussed in a blog post here) but is now farther along in the legislative process because it has passed the House and is now with the Senate Labor and Industry Committee for consideration. The proposed legislation provides that a contractor or subcontractor may suspend performance if payment is not received in accordance with the terms of their construction contract. Specifically, if the contractor/subcontractor is not paid in accordance with the contract terms, the contractor/subcontractor must provide two separate 30 day notices before it can suspend work.  Specifically, the contractor/subcontractor must take the following steps before suspending:
  • Once 30 calendar days have passed since the end of the billing period, the contractor/subcontractor must provide written notice to the owner/contractor, via e-mail or postal service, stating payment has not been made.
  • When an additional 30 days have passed since that notice, the contractor/subcontractor must provide written notice, via certified mail, stating that the contractor/subcontractor intends to suspend work in 10 calendar days.
Thus, suspension of work under the proposed legislation will require two notices and waiting at least 70 days. The proposed legislation also establishes that the provisions of CASPA cannot be waived in a contract and requires a written explanation of the good faith reason for withholding payment (including retainage payment) for a deficiency item.  Failure to provide such notice will constitute a waiver of the basis to withhold payment and require payment to the contractor or subcontractor in full. In addition, the proposed bill requires an invoice recipient (owner or general contractor) who believes the received invoice is overstated still must pay the amount of the invoice it believes is correct when that amount would otherwise be due. This revision appears to be aimed at preventing a dispute over one component of an invoice from being used to delay payment of amounts not otherwise in dispute.  It would also permit a contractor or subcontractor to 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 the retainage.  Finally, HB 566 provides that if the withholding of retainage is longer than 30 days after the final acceptance of the work, a written explanation must be provided for the withholding, and failure to provide such an explanation constitutes a waiver of the basis to withhold payment and requires payment in full. Babst Calland will continue to monitor HB 566 as well as other proposed legislation that may impact the construction industry and post updates on this Blog whenever they become available.

Tagged:  CASPA, Construction Contracts, Contract Clauses, Industry news, Subcontractors

Bill Seeking to Amend Construction Payment Act Introduced in Pennsylvania’s Legislature

On May 18, 2017, Representative David S. Maloney, Sr. (R., Berks County) introduced House Bill 1387, which seeks to amend Pennsylvania’s Contractor and Subcontractor Payment Act (CASPA).  The changes include the inserting language amending CASPA to state the following:
  • A contractor or subcontractor may not contractually waive CASPA rights;
  • Failure to provide written notice of a deficiency item results in a waiver of the right to withhold for the deficiency and requires payment of the invoice in full;
  • If withholding for a deficiency item, payment for all non-deficient work must still be made;
  • If a party receiving an invoice alleges the invoice contains an error, the party must pay the correct invoice amount on the date payment would otherwise be due;
  • A party seeking release of retention may post a maintenance bond for 120% the amount retained to obtain release of retention;
  • Withholding retention for longer than 30 days after “final acceptance of the work” will qualify as an improper withholding unless the appropriate notice requirements are followed;
  • Withholding requirements also apply to subcontractors’ sub-subcontracts with lower-tier subcontractors; and
  • Compliance with the notice requirements for withholding based upon deficiencies is necessary for the withholding to “not be deemed to have been wrongfully withheld.”
Babst Calland will continue to monitor HB 1387 as well as other proposed legislation that may impact the construction industry and post updates on this Blog whenever they become available.

Tagged:  CASPA, Contract Clauses, Industry news, Proposed Legislation, Subcontractors

Use of the New State Construction Notices Directory for Oil and Gas Construction Projects

An article in the March 2017 issue of The PIOGA Press, co-authored by Babst Calland Attorneys Dave White and Esther Soria Mignanelliaddresses the impacts of the recent amendments to the Pennsylvania Mechanics’ Lien Law (Act No. 142) and related newly created on-line State Construction Notices Directory on oil and gas infrastructure projects. To view the full article, click here.

Tagged:  Mechanics' lien, Pipeline construction

AIA B101-2007 Supports Architect’s Copyright Infringement Claim against Contractor, Subcontractors

In a case of first impression, in April 2016 the Northern District of Ohio held in Eberhard Architects, LLC v. Bogart Architecture, Inc., 314 F.R.D. 567 (N.D. Ohio 2016), that a contractor and its subcontractors may have committed copyright infringement by continuing work after the architect terminated the nonexclusive license to use the architect’s instruments of service (“IOS”).

Eberhard Architects, LLC (“Eberhard”) agreed to provide architectural services to Lifecare Hospice (“Lifecare”) in accordance with AIA B101-2007 (the “Agreement”). Based on the standard language of AIA B101-2007, Eberhard granted Lifecare a nonexclusive license to use the IOS created by Eberhard in connection with the construction of a 12-bed hospice inpatient facility:

Upon execution of this Agreement, the Architect grants to the Owner a nonexclusive license to use the Architect's Instruments of Service solely and exclusively for purposes of constructing, using, maintaining, altering and adding to the Project, provided that the Owner substantially performs its obligations, including prompt payment of all sums due, under this Agreement. The Architect shall obtain similar nonexclusive licenses from the Architect's consultants consistent with this Agreement. The license granted under this section permits the Owner to authorize the Contractor, Subcontractors, Sub-subcontractors, and material and equipment suppliers, as well as the Owner's consultants and separate contractors, to reproduce applicable portions of the Instruments of Service solely and exclusively for use in performing services or construction for the Project. If the Architect rightfully terminates this Agreement for cause as provided in Section 9.4, the license granted in this Section 7.3 shall terminate.

Eberhard obtained a copyright in connection with the IOS for the project. Lifecare later breached the Agreement by failing to make required payments and Eberhard terminated the Agreement. Eberhard brought suit against Lifecare for breach of contract, and also asserted claims for copyright infringement against Lifecare and the contractor and subcontractors (the “Contractor Defendants”) alleging that the Contractor Defendants continued to use Eberhard’s copyrighted IOS after Eberhard terminated the nonexclusive license.

Relying on the language of AIA B101-2007, the Court noted that the parties expressly agreed that Eberhard’s termination of the Agreement would also terminate the nonexclusive license. The Court therefore denied the Contractor Defendants’ motion to dismiss and allowed Eberhard to proceed with its copyright infringement claims against the Contractor Defendants.

The Eberhard decision demonstrates the full scope of the power an architect wields via its ability to grant and revoke a nonexclusive license. If the architect terminates its design agreement with the owner, it may be able to effectively halt work on the entire project until the dispute is resolved or the parties reach an agreement as to the continued use of the architect’s IOS. In light of this possibility, contractors desiring additional protection should consider including language in their contracts permitting them to suspend work (or even terminate the contract) if the architect terminates the design agreement and questions arise as to the validity of the license protecting the architect’s IOS.

Tagged:  Breach of contract, Construction Contracts, Contract Clauses, Design-Build, Subcontractors