Pennsylvania Prompt Payment Act

All You Need to Know About Pennsylvania’s Prompt Payment Act

If you are an owner of a construction company in Pennsylvania, you probably know all too well how critical it is for the profitability and sustainability of your business that your clients keep their contractual obligations with regards to payment deadlines and the Pennsylvania Prompt Payment Act. A promptly paid invoice keeps your company going. It allows you to pay up your own financial obligations, compensate your employees or subcontractors, and finish up the current project or move on to a new one without unnecessary delays. Being able to do so can make all the difference between long-term success and failure, especially in a market as competitive as construction services. Thus, late payments can put your business – and, by extension, your livelihood – in considerable jeopardy.

On the other hand, as a contractor, you likely understand that a real property owner may, under certain circumstances, legally withhold the payment – for example, if they have legitimate concerns about the quality of the workmanship or if the project hasn’t been developed and finished in accordance with the terms of the contract.

How does Pennsylvania state law balance the often-conflicting interests of both contractors and property owners when it comes to payments? How are the obligations a contractor has towards its subcontractors affected if a real property owner decides to exercise their right to withhold payment in good faith? These sensitive issues are regulated by the precise stipulations of the Pennsylvania Subcontractor/Contractor Payment Act, also called Prompt Payment Act. The provisions of this law apply to all constructions projects in Pennsylvania apart from residential projects of 6 or fewer units.

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In this article, we will offer an overview of the most important tenets of this law. The following analysis will help contractors in Pennsylvania to gain a good understanding of this act so that they can successfully exercise their rights, protect their interests, and fulfill the obligations they themselves may have towards subcontractors.

Owner’s Payment Obligations Under the Prompt Payment Act

As a contractor, it is essential that you know what protections Pennsylvania’s Prompt Payment Act offers you in relation to contractual payment obligations. First, the law requires a real property owner who contracts a construction company to pay the contractor “strictly in accordance with terms of the construction contract”. In practical terms, it means that the payment must be made without any delays on the day specified by the agreement.

What happens, however, if for some reasons the contract you signed doesn’t specify due dates of payments? Prompt Payment Act has your back covered even if the contract you have with the owner is vague with regards to payment dates. In such situations, the law entitles the contractor to issue regular invoices for progress payments at the end of each billing period as well as a final invoice upon the completion of the project.

In addition, Prompt Payment act imposes on the owner an obligation to settle any outstanding invoices within “20 days after the end of a billing period or 20 days after delivery of the invoice, whichever is later”. This stipulation also comes with a mandatory penalty for late payments. If the owner fails to pay the contractor within 7 days, starting from the above-mentioned period of twenty days, then the contractor is entitled to an interest of 1% of the outstanding amount per month. It is important to note, however, that both of these stipulations – the due date and the interest rate for late payments – can be altered by specific provisions of the construction contract if agreed upon by both parties.

Contractor’s Payment Obligations According to the Prompt Payment Act

In order not to find themselves in violation of Prompt Payment Act, contractors in Pennsylvania must also understand how this legislation regulates payment obligations they have towards their subcontractors.

The first important duty the law bestows upon a contractor is called disclosure of payment dates. The act states that a contractor is obliged to disclose to a subcontractor the due dates for payments from the owner. If a contractor fails to do so, they still must pay a subcontractor as if the owner met their obligations stipulated by the act – that is, as if the payment was made 20 days after the end of a billing period or 20 days after delivery of the invoice. In practical terms, this means that a contractor must still pay its subcontractors regardless of whether the real property owner fulfilled his or her contractual obligations and paid the contractor or not.

The act also spells out the time a contractor has to make the payment to subcontractors, and it is “14 days after receipt of each progress or final payment or 14 days after receipt of the subcontractor’s invoice, whichever is later”. Late payments are also subject to the interest of 1%. However, the interest will be due “beginning on the next day” after the due date rather than on the 8th day as it is the case with owner’s late payments.

Contractor’s Withholding of Payment for Good Faith Claims

As mentioned at the beginning, a real property owner who contracts a construction company to perform some work on the property has the right to withhold payment the work provided is not up to the agreed standard. As a contractor, however, you should also realize that, according to Prompt Payment Act, the owner can only withhold payment for the work that has been found deficient and must still pay the contractor for the items that have been satisfactorily completed.

If you are a contractor in Pennsylvania, you still may have some questions with regards to how Prompt Payment Act applies in your particular case and circumstances. If that’s the case, or if you’re currently trying to recover late payment and fees, do not hesitate to contact the attorneys at National Lien & Bond. We are a trusted mechanics lien law firm operating nationally with a proven record of solved cases and satisfied clients. We will help you take advantage of all the legal protections and rights you have to make sure that you get paid promptly and without any negative effects on your business.

Download Pennsylvania Lien & Notice Deadline Guide

This blog is for educational purposes only and not intended for legal advice.

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