Construction Law Blog
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.