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PA Court Casts Doubt on Safe Harbor Provision of Procurement Code

A recent decision by the Pennsylvania Commonwealth Court casts doubt on the “safe harbor” provision of Pennsylvania’s Procurement Code. Section 3939(b) of the Commonwealth Procurement Code provides, “Once a contractor has made payment to the subcontractor according to the provisions of this chapter, future claims for payment against the contractor or the contractor’s surety by parties owed payment from the subcontractor which has been paid shall be barred.” The clear language of this section of the Procurement Code has provided a complete defense to contractors and their sureties on projects to which the Procurement Code applies when payment can be established. However, in Berks Products Corp. v. Arch Ins. Co., No. 1457 C.D. 2012, the plaintiff-claimant on the payment bond issued by defendant-surety claimed that the language of this particular bond was broad enough to effectively waive the protection of section 3939 of the Procurement Code. The Commonwealth Court found that while the “safe harbor” provisions of the Procurement Code are incorporated by operation of law into the bond, the bond language can waive the protection of that statute. In this case the operative language of the bond provided that the bond will remain “in force and effect” until such time as both the principal and any of its subcontractors makes full payment for any labor or materials supplied for the school project at issue. Based on that language the Commonwealth Court concluded that the principal and surety had waived the “safe harbor” protection of section 3939 of the Procurement Code.