Pennsylvania Supreme Court Holding Highlights Variations in Prompt Payment Law
Date: November 03, 2016
Variations in prompt payment law are found throughout the United States. At its core, prompt payment law protects contractors from payments being improperly withheld on a construction project. But the extent of these protections varies by state and can depend on whether the project is public or private, or whether the claimant is a prime contractor or a subcontractor. A recent decision by the Pennsylvania Supreme Court, A. Scott Enterprises, Inc. v. City of Allentown, 55 MAP 2015 (Pa. 2016), offers a good example of these important distinctions. In A. Scott Enterprises, the court held that where payment is withheld in bad faith on a public construction project, interest and attorneys’ fees are within the court’s discretion under the state’s public procurement statute, rather than automatically awarded.
A. Scott Enterprises involves a construction delay claim based on unexpected variations at the project site. The city of Allentown contracted with A. Scott Enterprises (ASE), the prime contractor, for the construction of a new public road. Following the discovery of arsenic-contaminated soil, the city suspended the project and conducted testing on the site conditions. After it was determined that work could continue if certain precautions were taken, the city ordered ASE to proceed without adjusting the contract for the extra cost of this work, and eventually withheld payments after ASE protested.
The Pennsylvania Supreme Court decided that even though ASE was entitled to damages for payments withheld on the project, it was not automatically entitled to attorneys’ fees for bad faith under the state’s prompt payment law. The court focused on the presence of “may award” language in the public prompt payment statute, 62 Pa.C.S. § 3935, and contrasted this with the “shall award” language in cases of bad faith found in the state’s private prompt payment law, 73 P.S. § 512. The court interpreted this distinction as evidence that the state legislature intended a specific meaning for the word “may;” that is, to provide judges with discretion in cases of public construction projects.
The court’s decision in A. Scott Enterprises highlights the potential impact of seemingly small details in the language of prompt payment statutes, and these details vary between jurisdictions. Ohio’s Prompt Payment Act, for example, § 4113.61(B), provides that attorneys’ fees “shall” be awarded unless the court finds that such an award would be “inequitable.” Thus, as with the Pennsylvania statute interpreted in A. Scott Enterprises, Ohio’s Prompt Payment Act allows the court to exercise its discretion in deciding whether or not to award attorneys’ fees. Other states treat these distinctions differently. In Kentucky, for example, K.R.S. 371.415 provides that attorneys’ fees “shall” be awarded if there is a finding of bad faith in both private and public projects, but with a cap on the fees that can be recovered on the public side. Maryland’s Prompt Payment Act, found in Md. Code, Real Property, § 9-301 to 9-304, provides that attorneys’ fees “may” be awarded after a finding of bad faith, but appears to exempt public authorities from the time requirements for payment, and therefore the penalties of non-compliance. See § 9-303(b); 9-302(2).
Whether penalties are automatically awarded after a finding of bad faith under prompt payment law is of course a very significant issue. In construction litigation, interest and attorneys’ fees are often significant portions of the award. It is therefore important to be mindful of these distinctions among the various states when pursuing damages under a prompt payment claim.
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