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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.