Pennsylvania Prompt Payment Guide and FAQs

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Pennsylvania Prompt Payment Overview

Pennsylvania Prompt Payment Requirements


  • Private Jobs
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20
DAYS
Prime Contractors

For Prime Contractors, progress payment must be made within 20 days of invoice. Final payment due within 30 days of final acceptance of project.


14
DAYS
Subcontractors

For Subcontractors, payment due by later of 14 days after payment received from above, or 14 days after receipt of invoice.


14
DAYS
Suppliers

For Suppliers, payment due by later of 14 days after payment received from above, or 14 days after receipt of invoice.


1%
/ MONTH
Interest & Fees

Interest at 1% per month. Penalty of 1% month for amounts withheld "wrongfully." Attorneys' fees to prevailing party.

45
DAYS
Prime Contractors

For Prime (General) Contractors, progress payments due within 45 days of invoice (may be modified by contract). Final/retainage payments due within 45 days of final payment inspection (final payment inspection must occur within 30 days of request).


14
DAYS
Subcontractors

For Subcontractors, payments due within 14 days of payment received from above.


14
DAYS
Suppliers

For Suppliers, payments due within 14 days of payment received from above.


1%
/ MONTH
Interest & Fees

Interest at statutory rate. Plus an additional penalty of 1% month for amounts withheld in bad faith, along with attorneys' fees.

Prompt payment laws are a set of rules that regulate the acceptable amount of time in which payments must be made to contractors and subs. This is to ensure that everyone on a construction project is paid in a timely fashion. These statutes provide a framework for the timing of payments to ensure cash flow and working capital.

Projects Covered by Prompt Payment in Pennsylvania

The Pennsylvania prompt payment provisions are split into two sections, covering both private and public projects. These statutes govern the timing of all payments on construction projects, and impose penalties for late payment in the form of interest.

Private Projects

These rule found in 73 P.S. §501 et seq. apply to all private projects within the state except for two specific scenarios: (1) residential projects with 6 or fewer units, and (2) contracts for the purchase of materials by a person performing work on their own property. Most of the provisions governing payment on private projects are default provisions in case the contract terms are silent on the issue.

Payment Deadlines for Private Projects

Progress payments from property owners are due within 20 days of either the end of the billing cycle, or after delivery of the invoice; whichever is later. Final payments to prime contractors are due within 20 days of completion of the work.

As for payment to all other tiers of the payment chain, the deadline to pay is 14 days from either the day the paying party received payment from the owner, or from the day the payment invoice was received; whichever is later. If any submitted invoice is incorrect or claims too much, then the party receiving the invoice must give notice within 10 days of receipt. However, they are still obligated to pay the undisputed amounts within the statutory time period.

Penalties for Late Payment on Private Projects

If the work or materials are defective according to the contract terms, the paying party may withhold payment as long as they provide written notice within 7 calendar days. If any payments aren’t made within 7 days of the due date, 1% interest per month will accrue until payment is made. Additionally, if there is any evidence of bad faith, meaning arbitrary or vexatious withholding, the claimant will be awarded an additional 1% interest per month, along with attorney fees if they prevail in arbitration or litigation.

Public Projects

Pennsylvania public works project payment deadlines and penalties are regulated by 62 Pa. C.S. §3931 et seq.

Payment Deadlines for Public Projects

Prime contractors on Pennsylvania public works projects are to be paid in accordance with the contract terms. If there are no specific payment terms, then the prime must be paid within 45 days of the public entity’s receipt of the pay application. As for payments to all other tiers of project participants, once the hiring party receives payment, they have 14 days to release payment.

Again, if there is any defective work or materials, payments may be withheld. However, if this is the case, written notice must be given within 15 calendar days of receipt of the notice of defect.

The prompt pay provisions on public projects establishes a grace period for payment, if the contract doesn’t state one, then interest won’t accrue if payment is made on or before 15 calendar days after payment is due. If not, then the interest rate penalties for late payment on public projects accrue at different rates depending on a few factors.

Penalties for Late Payment on Public Projects

Late progress payments will accrue interest at the rate for overdue taxes set by the PA Secretary of Revenue. The interest applied to late final payments depends on whether the contract provided for retainage or not. If retainage is being withheld, then interest will accrue at 6% per year; if not, then the rate will be 10% per year. The bad faith additional 1% interest rate and attorney fees is also applicable to public projects as well.

Pennsylvania Prompt Payment Frequently Asked Questions

Pennsylvania Prompt Payment Private Projects FAQs

What types of private projects are covered under Pennsylvania’s prompt payment laws?

The prompt payment provisions on private projects, also referred to as the Pennsylvania Contractor and Subcontractor Payment Act, applies to all private construction contracts, with two exceptions:

• Residential property with 6 or fewer units

• Contracts for the purchase of materials by an owner performing work on the owner’s property

When do payments become due under Pennsylvania’s prompt payment laws?

In order for the provisions of the Pennsylvania prompt pay statutes to apply, the party requesting payment must be entitled to by performing in accordance with the terms of the contract and submitting a request for payment.

When is the deadline for payments under Pennsylvania’s prompt payment laws?

Owner to direct contractors

Unless otherwise agreed to by the parties, all payments from the property owner must be made within 20 days after the end of the billing period, or delivery of an invoice; whichever is later

Contractors to subs/suppliers

As far as all other payments down the contracting chain, payments to subs and suppliers must be made within either 14 days from when the higher-tiered party receives payment, or from the date the invoice is received; whichever is later.

How do you know when the higher-tiered party is getting paid? Well, under PA’s prompt payment laws, contractors and subs must disclose payment dates prior to executing the contract. If they fail to do so, payments must be made under the assumption that the owner has made payments within 20 days from the end of the billing cycle.

Are there reasons for which payment may be withheld past the general deadline?

A party may withhold a reasonable amount of payment for any items furnished that are deficient according to the terms of the contract. If any portion of the work that is satisfactorily performed is included in the invoice, payments of that portion must be made.

If a party intends to withhold payments, a written notice must be provided with a good faith explanation as to why payments are withheld within 14 days of receipt of the invoice. Failure to provide this notice waives the party’s right to withhold payment and therefore requires full payment of the invoice.

If I am paid late according to the prompt payment statutes, can I obtain interest or other penalties?

Yes, late payments will assessed interest at a rate of 1% per month until payment has been made. This interest accrues on the 8th day after payment is due to a direct contractor, all other payments down the contracting chain accrue interest the day after the payment deadline.

If the withholding is found to be in bad faith, the arbitrator or court may assess an additional interest penalty of 1% per month, as well as any reasonable attorney fees. Bad faith in this context has been defined by the PA courts as any withholding that is “arbitrary or vexatious.” Which are further defined as:

• Arbitrary- convenient selection or choice rather than one based on reason

• Vexatious- committed without sufficient ground in either fact or law with the purpose of causing annoyance

Can I include prompt payment fees in my Pennsylvania mechanics lien claim?

No, no extraneous amounts “unconnected with the construction, improvement, repair, or alteration of the real property” may be included in a Pennsylvania mechanics lien claim.

Can I suspend performance for late payment?

Yes, PA laws specifically allow for the suspension of performance for violations of the prompt payment provisions. If payment is more than 30 after the end of the billing cycle, the party may provide notice to the non-paying party. If an additional 30 days passes after the notice was sent, an additional notice may be sent stating their intention to suspend performance.

What is the best practice for making a demand to a non-paying party to get Prompt Payment Fees?

If payment is delayed, sending a prompt payment demand letter along with a notice of intent to lien is a good place to start. If the demand letter doesn’t spurn payment you can try sending a notice of intent to make a prompt payment claim. This isn’t required, but could be helpful to put pressure on your customer, by letting them know you’re within your rights to file a suit to recover payment and penalties.

Lastly, if payment isn’t still forthcoming, then you may want to consider filing a prompt payment action and/or filing a PA mechanics lien claim.

Pennsylvania Prompt Payment Public Projects FAQs

What types of public projects are covered under Pennsylvania’s prompt payment laws?

The Pennsylvania public prompt payment provisions apply to all construction contracts entered into with a state, county, local, or municipal government entity where the contract value is at least $50,000 or more; with the exception of contracts with the Department of Transportation.

When do payments become due under Pennsylvania’s prompt payment laws?

In order for the provisions of the Pennsylvania prompt pay statutes to apply, the party requesting payment must be entitled to by performing in accordance with the terms of the contract and submitting a request for payment.

When is the deadline for payments under Pennsylvania’s prompt payment laws?

Public entity to direct contractors

Payments must be made in accordance with the payment schedule set forth in the terms of the contract. If no pay schedule is provided, then progress payments must be made within 45 calendar days from the receipt of a request for payment.

Final inspections must be commenced within 30 days of receipt of a final payment request, and payment must be release within 45 days of inspection.

Contractors to subs/suppliers

All other payments down the contracting chain must be made within 14 day of receipt of payment.

Similar to the private works provisions, contractors and subs must disclose the due dates for receipt of progress payments before executing the subcontract.

Are there reasons for which payment may be withheld past the general deadline?

The public entity may withhold a reasonable amount of payment in good faith for labor and/or materials not furnished in accordance with the terms of the contract. If portions of the pay application also include items that were performed satisfactorily, payment for those items must be released. Similarly, contractor may withhold payments from the sub/supplier responsible for the deficient items.

If the public entity does decide to withhold payments, they must notify the contractor within 15 calendar days of receipt of the pay request containing the deficient items. In turn, if a contractor withholds payment, they must notify the sub in writing within 15 days of receipt of a notice of withholding from the public entity.

If I am paid late according to the prompt payment statutes, can I obtain interest or other penalties?

The amount of interest that accrues if payments aren’t made in accordance with the PA prompt pay provisions will vary depending on the type of payment.

Progress payments

Progress payments not made within 15 days of the payment deadline are subject to an interest rate on overdue taxes or the refund of the taxes set by the Secretary of Revenue.

Final payments

Any wrongful withholding of final payments will accrue interest at a rate of 6% per year if the contract doesn’t withhold retainage. And a rate of 10% per year for contracts that don’t provide for retainage.

Bad faith penalties

In addition to interest accrual for late payments, if the withholding is determined to be in bad faith there will be an additional penalty of 1% interest per month, and with the award of attorney fees. See the question above for a definition of “bad faith.”

Can I include prompt payment fees in my Pennsylvania payment bond claim?

No. Pennsylvania public works payment bond claims are limited to the reasonable amount due for labor and/or materials provided.

Can I suspend performance for late payment?

Unlike private projects, there is no statutory basis for the suspension of performance on public works projects. Therefore, the ability to do so will be governed by the terms of the contract or subcontract.

What is the best practice for making a demand to a non-paying party to get prompt payment fees?

Sending a prompt payment demand letter along with a notice of intent to make a bond claim is generally the best method for encouraging parties to make payments. If the demand letter doesn’t spur payment, you can try sending a notice of intent to make a prompt payment claim. This is not a required notice, but can be a useful tool to increase the pressure on the non-paying party by letting them know that you are aware of your rights to payments and are willing to enforce them in court. If payment still isn’t forthcoming, you may want to consider filing a prompt payment claim and/or a payment bond claim.

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Pennsylvania Prompt Payment Statutes

Getting informed about prompt payment laws is important. An examination of Pennsylvania’s prompt payment laws, the rules and regulations related to payment timing, is important to know your rights and responsibilities as a party on a construction project. Pennsylvania’s specific laws can be found in: 73 P.S. §§ 501-516, 62 Pa. Con. Stat. §§ 3901, 3902, & 3931 et seq., and are reproduced below. Updated as of February 2021.

Prompt Payment Statute on Private Projects

73 § 501. Short title

This act shall be known and may be cited as the Contractor and Subcontractor Payment Act.

73 § 502. Definitions

The following words and phrases when used in this act shall have the meanings given to them in this section unless the context clearly indicates otherwise:

“Billing period.” A payment cycle agreed to by the parties or, in the absence of an agreement, the calendar month within which work is performed.

“Construction contract.” An agreement, whether written or oral, to perform work on any real property located within this Commonwealth.

“Contractor.” A person authorized or engaged by an owner to improve real property.

“Deficiency item.” Work performed but which the owner, the contractor or the inspector will not certify as being completed according to the specifications of a construction contract.

“Delivery.” Transmittal to an addressee, including, but not limited to, delivery by first class or registered mail, hand delivery or transmission by facsimile machine. Mail, properly addressed, shall be deemed delivered three days from the day it was sent.

“Improve.” To design, effect, alter, provide professional or skilled services, repair or demolish any improvement upon, connected with, or on or beneath the surface of any real property, to excavate, clear, grade, fill or landscape any real property, to construct driveways and private roadways, to furnish materials, including trees and shrubbery for any of these purposes, or to perform any labor upon improvements.

“Improvement.”

(1) All or any part of a building or structure.

(2) The erection, alteration, demolition, excavation, clearing, grading or filling of real property.

(3) Landscaping, including the planting of trees and shrubbery, and constructing driveways and private roadways on real property.

“Inspector.” The contractor or a person authorized or engaged by the owner to inspect the work performed pursuant to a construction contract to determine whether the work completed is in compliance with the construction contract.

“Owner.” A person who has an interest in the real property that is improved and who ordered the improvement to be made. The term includes successors in interest of the owner and agents of the owner acting with their authority.

“Person.” A corporation, partnership, business trust, other association, estate, trust foundation or a natural individual.

“Real property.” Real estate that is improved, including lands, leaseholds, tenements and hereditaments, and improvements placed thereon.

“Subcontractor.” A person who has contracted to furnish labor or materials to, or has performed labor for, a contractor or another subcontractor in connection with a contract to improve real property.

73 § 503. Application of act

(a) Number of residential units.–This act shall not apply to improvements to real property which consists of six or fewer residential units which are under construction simultaneously.

(b) Owner’s exclusion.--This act shall not apply to contracts for the purchase of materials by a person performing work on his or her own real property.

(c) Prohibition on waiver.–Unless specifically authorized under this act, parties to a contract or other agreement may not waive a provision of this act by contract or other agreement.

73 § 504. Performance by contractor or subcontractor

Performance by a contractor or a subcontractor in accordance with the provisions of a contract shall entitle the contractor or subcontractor to payment from the party with whom the contractor or subcontractor has contracted.

73 § 505. Owner's payment obligations

(a) Construction contract.–The owner shall pay the contractor strictly in accordance with terms of the construction contract.

(b) Absence of payment term.–In the absence of a construction contract or in the event that the construction contract does not contain a term governing the terms of payment, the contractor shall be entitled to invoice the owner for progress payments at the end of the billing period. The contractor shall be entitled to submit a final invoice for payment in full upon completion of the agreed-upon work.

(c) Time for payment.–Except as otherwise agreed by the parties, payment of interim and final invoices shall be due from the owner 20 days after the end of a billing period or 20 days after delivery of the invoice, whichever is later.

(d) Interest.–Except as otherwise agreed by the parties, if any progress or final payment to a contractor is not paid within seven days of the due date established in subsection (c), the owner shall pay the contractor, beginning on the eighth day, interest at the rate of 1% per month or fraction of a month on the balance that is at the time due and owing.

(e) Suspension of performance.

(1) If payment is not received by a contractor in accordance with this section, the contractor shall have the right to suspend performance of any work, without penalty, until payment is received according to the terms of the construction contract. Any procedure in a construction contract that exceeds the procedure in paragraph (2) shall be unenforceable.

(2) Suspension of performance in a construction contract may occur in accordance with paragraph (1) or if:

(i) Payment has not been made to the contractor in accordance with the schedule established under subsection (c);

(ii) At least 30 calendar days have passed since the end of the billing period for which payment has not been received according to the terms of the construction contract, the contractor shall provide written notice to the owner or the owner’s authorized agent, via electronic mail or postal service, stating that payment has not been made; and

(iii) At least 30 calendar days have passed since the written notice in subparagraph (ii) has been sent, the contractor shall provide at least 10 calendar days’ written notice, via certified mail, of the contractor’s intent to suspend performance to the owner or the owner’s authorized agent.

73 § 506. Owner's withholding of payment for good faith claims

(a) Authority to withhold.–The owner may withhold payment for deficiency items according to the terms of the construction contract. The owner shall pay the contractor according to the provisions of this act for any item which appears on the invoice and has been satisfactorily completed.

(b) Notice.

(1) Except as provided under section 9, if an owner withholds payment from a contractor for a deficiency item, the amount withheld shall be reasonable and the owner shall notify the contractor of the deficiency item by a written explanation of its good faith reason within 14 calendar days of the date that the invoice is received.

(2) Failure to comply with paragraph (1) shall constitute a waiver of the basis to withhold payment and necessitate payment of the contractor in full for the invoice.

(3) If an owner withholds payment from a contractor for a deficiency item, the owner shall remit payment to the contractor for each other item that has been satisfactorily completed under the construction contract.

73 § 507. Contractor's and subcontractor's payment obligations

(a) Entitlement to payment.— Performance by a subcontractor in accordance with the provisions of the construction contract shall entitle the subcontractor to payment from the party with whom the subcontractor has contracted.

(b) Disclosure of payment dates.–A contractor or subcontractor shall disclose to a subcontractor, before a subcontract is executed, the due date for receipt of payments from the owner. Notwithstanding any other provision of this act, if a contractor or subcontractor fails to accurately disclose the due date to a subcontractor, the contractor or subcontractor shall be obligated to pay the subcontractor as though the due dates established in section 5(c) were met by the owner. This subsection shall not apply to a change in due dates because of conditions outside of the contractor’s control, including, but not limited to, design changes, change orders or delays in construction due to weather conditions.

(c) Time for payment.— -When a subcontractor has performed in accordance with the provisions of the construction contract, a contractor shall pay to the subcontractor, and each subcontractor shall in turn pay to the subcontractor’s subcontractors, the full or proportional amount received for each such subcontractor’s work and materials, based on work completed or service provided under the subcontract, 14 days after receipt of each progress or final payment or 14 days after receipt of the subcontractor’s invoice, whichever is later. Payment shall be made under this section unless it is being withheld under section 11.

(d) Interest.–If any progress or final payment to a subcontractor is delayed beyond the date established in subsection (b) or (c), the contractor or subcontractor shall pay the subcontractor interest, beginning on the next day, at the rate provided for in section 5(d) on the balance that is at the time due and owing.

(e) Suspension of performance.

(1) If payment is not received by a subcontractor in accordance with this section, the subcontractor shall have the right to suspend performance of any work, without penalty, until payment is received according to the terms of the construction contract. Any procedure in a construction contract that exceeds the procedure in paragraph (2) shall be unenforceable.

(2) Suspension of performance in a construction contract may occur in accordance with paragraph (1) or if:

(i) Payment has not been made to the subcontractor in accordance with the schedule established under subsection (c);

(ii) At least 30 calendar days have passed since the end of the billing period for which payment has not been received according to the terms of the construction contract, the subcontractor shall provide written notice to the contractor or contractor’s authorized agent, via electronic mail or postal service, stating that payment has not been made; and

(iii) At least 30 calendar days have passed since the written notice in subparagraph (ii) has been sent, the subcontractor shall provide at least 10 calendar days’ written notice, via certified mail, of the subcontractor’s intent to suspend performance to the owner or the owner’s authorized agent.

73 § 508. Errors in documentation

(a) Notice of errors in invoice.–If an invoice is filled out incorrectly or incompletely or if there is any other defect or impropriety in an invoice, the person who receives the incorrect invoice shall give written notice to the person who sent the incorrect invoice within ten working days of receipt of the invoice.

(b) [Repealed by 2018 Amendment.]

(c) Payment for invoice with error.–Once written notice has been received by the person who sent the incorrect invoice, the person receiving the invoice shall pay the correct amount of the invoice on the due date in accordance with this act.

73 § 509. Retainage

(a) Time for payment.–If payments under a construction contract are subject to retainage, any amounts which have been retained during the performance of the contract and which are due to be released to the contractor upon final completion shall be paid within 30 days after final acceptance of the work.

(a.1) Posting of security in lieu of retainage.–Upon reaching substantial completion of its own scope of work, a contractor or subcontractor may 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 retainage being held.

(b) Agreement between contractor and subcontractor.–If an owner is not withholding retainage, a contractor may withhold retainage from a subcontractor in accordance with their agreement. The retainage shall be paid within 30 days after final acceptance of the work.

(c) Payment of retainage to subcontractors.–A contractor shall pay to the contractor’s subcontractors, and each subcontractor shall in turn pay to the subcontractor’s subcontractors, within 14 days after receipt of the retainage, the full amount due each subcontractor.

(d) Withholding acceptance or failure to pay retainage.— Withholding of retainage for longer than 30 days after final acceptance of the work shall be subject to the obligations imposed upon the owner, contractor or subcontractor in section 6(b) or 11(b). If an owner, contractor or subcontractor unreasonably withholds acceptance of work or fails to pay retainage as required by this section, the owner, contractor or subcontractor shall be subject to the payment of interest at the rate established in section 5(d) on the balance due and owing on the date acceptance was unreasonably withheld or the date the retainage was due and owing, whichever is applicable. The owner, contractor or subcontractor shall also be subject to the provisions of section 12.

73 § 510. Prepayment; advance payment

This act shall not be construed to prohibit an owner, contractor or subcontractor from making advance payments or progress payments, or from prepaying if an agreement or other circumstances make such payment appropriate. All payments shall be made when they are due and owing and if not so made shall bear interest at the rate provided for in section 5(d) from the date payment was due. The person who fails to make timely payment shall also be subject to the provisions of section 11 .

73 § 511. Contractor's and subcontractor's withholding of payment for good faith claims

(a) Authority to withhold.–The contractor or subcontractor may withhold payment from any subcontractor responsible for a deficiency item. The contractor or subcontractor shall pay any subcontractor according to the provisions of this act for any item which appears on the invoice and has been satisfactorily completed.

(b) Notice.–

(1) Except as provided under section 9, if a contractor or subcontractor withholds payment from a subcontractor for a deficiency item, the contractor or subcontractor withholding payment must notify the subcontractor and the owner in writing of the good faith reason for the withholding within the time period specified in the construction contract or 14 calendar days of the date after receipt of the notice of the deficiency item.

(2) Failure to comply with paragraph (1) shall constitute a waiver of the basis to withhold payment and necessitate payment of the subcontractor in full for the invoice.

(c) Amount of withholding.–If a contractor or subcontractor withholds payment from a subcontractor for a deficiency item, the contractor or subcontractor withholding payment shall remit payment to the subcontractor for each other item that has been satisfactorily completed under the construction contract.

73 § 512. Penalty and attorney fee

(a) Penalty for failure to comply with act.–

(1) If arbitration or litigation is commenced to recover payment due under this act and it is determined that an owner, contractor or subcontractor has failed to comply with the payment terms of this act, the arbitrator or court shall award, in addition to all other damages due, a penalty equal to 1% per month of the amount that was wrongfully withheld.

(2) An amount shall not be deemed to have been wrongfully withheld if all of the following apply:

(i) The amount bears a reasonable relation to the value of any claim held in good faith by the owner, contractor or subcontractor against whom the contractor or subcontractor is seeking to recover payment.

(ii) The claim holder complies with section 6 or 11.

(b) Award of attorney fee and expenses.–Notwithstanding any agreement to the contrary, the substantially prevailing party in any proceeding to recover any payment under this act shall be awarded a reasonable attorney fee in an amount to be determined by the court or arbitrator, together with expenses.

73 § 513. Contracts involving Federal aid

If any provision of this act conflicts with a Federal statute or regulation or with conditions attached to the receipt of Federal aid, this act shall not operate to prevent receipt of Federal aid.

73 § 514. Applicable law

Making a contract subject to the laws of another state or requiring that any litigation, arbitration or other dispute resolution process on the contract occur in another state, shall be unenforceable.

73 § 515. Applicability

This act shall apply to construction contracts executed on or after the effective date of this act.

73 § 516. Third party claims

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.

Prompt Payment Statute on Public Projects

62 § 3901. Application and purpose of chapter

(a) Application.–Except as otherwise specifically provided in this chapter, this chapter applies to contracts entered into by a government agency through competitive sealed bidding or competitive sealed proposals.

(b) Purpose of chapter.— The purpose of this chapter is to establish a uniform and mandatory system governing public contracts to the extent of the requirements set forth in this chapter and shall be construed to effectuate such purpose. The provisions of this chapter shall in no way affect the provisions of the act of August 15, 1961 (P.L. 987, No. 442), known as the Pennsylvania Prevailing Wage Act, nor the regulations promulgated under that act, nor shall any requirements of this chapter affect any provisions of a contract to be awarded pursuant to any Federal law or regulations containing specific provisions which are different from the public contract requirements of this chapter.

62 §3902. Definitions

The following words and phrases when used in this chapter shall have the meanings given to them in this section unless the context clearly indicates otherwise:

“Contract.” A contract exceeding $50,000 for construction as defined in section 103 (relating to definitions), including heating or plumbing contracts but excluding Department of Transportation contracts under section 301(c)(1) (relating to procurement responsibility).

“Contractor.” A person who enters into a contract with a government agency.

“Deficiency item.” Work performed but which the design professional, the contractor or the inspector will not certify as being completed according to the contract.

“Design professional.” Persons performing professional services as defined in section 901 (relating to definitions).

“Government agency.” Includes any State-aided institutions.

“Inspector.” The person authorized or engaged by the government agency to inspect the work performed and materials furnished pursuant to a contract to determine whether the work completed is in compliance with the contract.

“Local government unit.” Any county, city, borough, incorporated town, township, school district, vocational school district, county institution, local authority or any joint or cooperative body of local government units or any instrumentality, authority or corporation thereof which has authority to enter into a contract.

“State-aided institution.” Any institution which receives State funds directly or indirectly for construction as defined in section 103 (relating to definitions).

“Subcontractor.” A person who has contracted to furnish labor or materials to or has performed labor for a contractor or another subcontractor in connection with a contract.

“Substantial completion.” Construction that is sufficiently completed in accordance with the contract and certified by the architect or engineer of the government agency, as modified by change orders agreed to by the parties, so that the project can be used, occupied or operated for its intended use. In no event shall a project be certified as substantially complete until at least 90% of the work on the project is completed.

62 § 3931. Performance by contractor or subcontractor

(a) Entitlement of contractor to payment.–Performance by a contractor in accordance with the provisions of a contract shall entitle the contractor to payment by the government agency.

(b) Entitlement of subcontractor to payment.–Performance by a subcontractor in accordance with the provisions of a contract shall entitle the subcontractor to payment from the contractor with whom the subcontractor has contracted.

62 § 3932. Government agency's progress payment obligations

(a) Payments in accordance with contract.–The government agency shall pay the contractor or design professional strictly in accordance with the contract.

(b) Application for progress payments.–If the contract does not contain a term governing the time for payment, the contractor or design professional shall be entitled to make application for payment from the government agency for progress payments, and the government agency shall make payment less the applicable retainage amount as authorized in section 3921 (relating to retainage) to the contractor or design professional within 45 calendar days of the date the application for payment is received.

(c) Interest on progress payments not timely made.–Except as otherwise agreed by the parties, if any progress payment less the applicable retainage amount as authorized in section 3921 is not made to a contractor or design professional by the due date established in the contract or in subsection (b), the government agency shall pay to the contractor or design professional, in addition to the amount due, interest on the amount due, and the interest shall be computed at the rate determined by the Secretary of Revenue for interest payments on overdue taxes or the refund of taxes as provided in sections 806 and 806.1 of the act of April 9, 1929 (P.L. 343, No. 176), known as The Fiscal Code.

(d) When interest payment not required.–In the event that the contract does not contain a grace period and if a contractor or design professional is not paid by the payment date required by subsection (b), no interest penalty payment required under this section shall be paid if payment is made on or before the 15th calendar day after the payment date required under this subchapter.

62 § 3933. Contractors' and subcontractors' payment obligations

(a) Performance by subcontractor entitles subcontractor to payment.–Performance by a subcontractor in accordance with the provisions of the contract shall entitle the subcontractor to payment from the party with whom the subcontractor has contracted. For purposes of this section, the contract between the contractor and subcontractor is presumed to incorporate the terms of the contract between the contractor and the government agency.

(b) Disclosure of progress payment due dates.–A contractor or subcontractor shall disclose to a subcontractor, before a subcontract is executed, the due date for receipt of progress payments from the government agency. Notwithstanding any other provisions of this subchapter, if a contractor or a subcontractor fails to accurately disclose the due date to a subcontractor, the contractor or subcontractor shall be obligated to pay the subcontractor as though the due dates established in subsection (c) were met by the government agency. This subsection shall not apply to a change in due dates because of conditions outside of the contractor’s control, including, but not limited to, design changes, change orders or delays in construction due to weather conditions.

(c) Payment.–When a subcontractor has performed in accordance with the provisions of the contract, a contractor shall pay to the subcontractor, and each subcontractor shall in turn pay to its subcontractors, the full or proportional amount received for each such subcontractor’s work and material, based on work completed or services provided under the subcontract, 14 days after receipt of a progress payment. Payment shall be made under this section unless it is being withheld under section 3934 (relating to withholding of payment for good faith claims).

(d) Interest due when progress payment not timely.–If any progress payment is not made to a subcontractor by the due date established in the contract or in subsection (c), the contractor shall pay to the subcontractor, in addition to the amount due, interest as computed in section 3932(c) (relating to government agency’s progress payment obligations).

(e) When interest payment not required.–In the event that the contract does not contain a grace period and if a subcontractor is not paid by the payment date required by subsection (c), no interest penalty payment required under this section shall be paid if payment is made on or before the 15th calendar day after the payment date required under this subchapter.

62 § 3934. Withholding of payment for good faith claims

(a) When government agency may withhold payment.–The government agency may withhold payment for deficiency items according to terms of the contract. The government agency shall pay the contractor according to the provisions of this subchapter for all other items which appear on the application for payment and have been satisfactorily completed. The contractor may withhold payment from any subcontractor responsible for a deficiency item. The contractor shall pay any subcontractor according to the provisions of this subchapter for any item which appears on the application for payment and has been satisfactorily completed.

(b) Notification when payment withheld for deficiency item.–If a government agency withholds payment from a contractor for a deficiency item, it shall notify the contractor of the deficiency item within the time period specified in the contract or 15 calendar days of the date that the application for payment is received. If a contractor withholds payment from a subcontractor for a deficiency item, it must notify the subcontractor or supplier and the government agency of the reason within 15 calendar days of the date after receipt of the notice of the deficiency item from the government agency.

62 § 3935. Penalty and attorney fees

(a) Penalty.–If arbitration or a claim with the Board of Claims or a court of competent jurisdiction is commenced to recover payment due under this subchapter and it is determined that the government agency, contractor or subcontractor has failed to comply with the payment terms of this subchapter, the arbitrator, the Board of Claims or the court may award, in addition to all other damages due, a penalty equal to 1% per month of the amount that was withheld in bad faith. An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious. An amount shall not be deemed to have been withheld in bad faith to the extent it was withheld pursuant to section 3934 (relating to withholding of payment for good faith claims).

(b) Attorney fees.–Notwithstanding any agreement to the contrary, the prevailing party in any proceeding to recover any payment under this subchapter may be awarded a reasonable attorney fee in an amount to be determined by the Board of Claims, court or arbitrator, together with expenses, if it is determined that the government agency, contractor or subcontractor acted in bad faith. An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious.

62 § 3936. Contracts involving Federal aid

If any provision of this chapter conflicts with a Federal statute or regulation or with conditions attached to the receipt of Federal aid, this chapter shall not operate to prevent receipt of the Federal aid in accordance with any Federal statute or regulation.

62 § 3937. Certain provisions unenforceable

provision in the contract making it subject to the laws of another state or requiring that any litigation, arbitration or other dispute resolution process on the contract occurs in another state shall be unenforceable.

62 § 3938: Applicability

(a) Not applicable in certain situations.–This subchapter shall not apply in the following situations:

(1) Section 3932 (relating to government agency’s progress payment obligations) shall not apply when the Commonwealth agency’s nonpayment on a particular project is caused by the failure of the General Assembly to enact a budget for the fiscal year of payment.

(2) Section 3932 shall not apply when a local government unit’s nonpayment on a particular project is caused by failure of the Federal or State Government to pay funds due and payable to the local government unit.

(3) Section 3932 shall not apply when a government agency’s nonpayment on a particular project is caused by the failure of the General Assembly to enact an operating budget for the fiscal year of payment or a capital budget for the capital project or by failure of the Federal, State or local government to pay funds designated or to be designated for the specific project.

(4) Nothing in this subchapter shall be construed to require payment of interest penalties by the Federal or State Government if the local government unit is liable for the interest.

(b) Not applicable to following entities.–This chapter shall not apply to any of the following:

(1) A municipality determined to be distressed under the act of July 10, 1987 (P.L. 246, No. 47) , known as the Municipalities Financial Recovery Act.

(2) A school district which has been determined to be a distressed school district under section 691 of the act of March 10, 1949 (P.L. 30, No. 14), known as the Public School Code of 1949.

(3) A city of the first class that has entered into an intergovernmental cooperation agreement under the act of June 5, 1991 (P.L. 9, No. 6) , known as the Pennsylvania Intergovernmental Cooperation Authority Act for Cities of the First Class, for so long as any deficit-reducing bonds issued by the authority pursuant tosection 301(b)(1) of that act are outstanding and payable.

(4) A corporate entity or school district as defined in the Pennsylvania Intergovernmental Cooperation Authority Act for Cities of the First Class.

(5) A transportation authority organized or operating under 74 Pa.C.S. Ch. 17 (relating to metropolitan transportation authorities).

62 § 3939. Claims by innocent parties

(a) No obligation to third parties.–The government agency shall have no obligation to any third parties for any claim.

(b) Barred claims.–Once a contractor has made payment to the subcontractor according to the provisions of this subchapter, 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.

62 § 3941. Substantial/final payment under contract

(a) Contract containing provision for retainage.–A contract containing a provision for retainage as provided in section 3921 (relating to retainage) shall contain a provision requiring the architect or engineer to make final inspection within 30 days of receipt of the request of the contractor for final inspection and application for final payment. If the work is substantially completed, the architect or engineer shall issue a certificate of completion and a final certificate for payment, and the government agency shall make payment in full within 45 days except as provided in section 3921, less only one and one-half times the amount required to complete any then-remaining uncompleted minor items, which amount shall be certified by the architect or engineer and, upon receipt by the government agency of any guarantee bonds which may be required, in accordance with the contract, to insure proper workmanship for a designated period of time. The certificate given by the architect or engineer shall list in detail each uncompleted item and a reasonable cost of completion. Final payment of any amount withheld for the completion of the minor items shall be paid upon completion of the items in the certificate of the engineer or architect.

(b) Interest.–The final payment due the contractor from the government agency after substantial completion of the contract shall bear interest at a rate of 6% per annum for all contracts without provisions for retainage and at a rate of 10% per annum for all contracts with provisions for retainage, the interest to begin after the date that such payment becomes due and payable to the contractor. However, where the government agency has issued bonds to finance the project, interest shall be payable to the contractor at the rate of interest of the bond issue or at the rate of 10% per annum, whichever is less, but in no event shall the interest payable to the contractor be at a rate of interest less than the legal rate of interest.

62 § 3942. Arbitration

If a dispute should arise between the contractor and the government agency over the payment of retainages and final payment, then the dispute shall be arbitrated under the applicable terms of the contract. If the contract contains no provision for arbitration, then both parties may mutually agree to arbitrate the dispute under the rules of the American Arbitration Association or in accordance with 42 Pa.C.S. Ch. 73 (relating to arbitration). In any event, either party shall have the right of appeal from any decision and award as provided by law.

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