The Pennsylvania Contractor and Subcontractor Payment Act 73 P.S. Sec. 501 et seq., was passed in 1994 to provide contractors and subcontractors additional protection when unpaid for their services on construction projects in that state. Generally speaking, the act sets forth general payment terms for contracts that don’t contain a payment due date, and provides for interest to accrue beginning 8 days after payment is due, and additional interest if the contractor or sub is successful in litigation to recover the payments due. Unfortunately, however, the act has (potentially unintended) consequences that undercut the rights of sub-subcontractors to recover through a bond claim.
73 P.S. Sec. 516 states that
Once a contractor has made payment to the subcontractor according to the payment terms of the construction contract or the provisions of this act, future claims for payment against the contractor by parties owed payment from the subcontractor which has been paid shall be barred.
This is an odd provision. On its face, the rule states that once a general has paid a sub, a sub-sub who hasn’t been paid by that sub is prohibited from making a claim against the general for payment. This clearly contradicts the provisions set forth in Pennsylvania bond law, so in regard to public projects in Pennsylvania, for which a bond is required, it is unclear how the courts will interpret this provision.
Pennsylvania bond law 8 P.S. Sec. 194(b) clearly holds that notice of the bond claim must only be delivered to the general contractor by the sub-sub within 90 days from the last date on which the sub-sub furnished labor and/or materials to the project. Since the terms of the contract between the general and sub may provide that payment is due to the sub prior to 90 days from the date on which a sub-sub furnishes labor and/or materials – the two laws will be in conflict.
At some point, Pennsylvania courts will be forced to address this discrepancy, but until then, sub-subs on public projects may wish to make any bond claim as early as possible, and maybe even attempt to determine the payment terms of the contract between the general and the hiring sub in order to make their claim prior to the due date of payment.