As of June 27, 2022
On June 24 the Appeals Court amended a critical sentence of recent IRIV v. Tocci decision, leaving open the possibility that failure to make payment on a requisition which has been “deemed approved” under the Prompt Pay Act results in the waiver of all defenses to the requisition in question.
In its original decision, the Court stated as a general principle that Owners and upper-tier contractors retain their claims and counterclaims to recoup money owed even if a requisition has been “deemed approved” and not otherwise rejected. But in an unusual move, the Court narrowed its ruling regarding recoupment, stating that Owners and upper-tier contractors who pay requisitions once they are “deemed approved” under the Prompt Pay Act retain the right to recoup money owed. Whether an Owner or upper-tier contractor who fails to make payment or otherwise reject the requisition also retains its right to recoup money owed now remains an open question.
With this change to the decision, it is imperative that Owners and upper-tier Contractors on private projects subject to the Prompt Pay Act strictly comply with the detailed requirements of the statute when rejecting payment requisitions and make payment once requisitions have been “deemed approved.”
As of June 10, 2022
On June 7, 2022, the Massachusetts Appeals Court upheld a decision of the Suffolk Superior Court strictly applying the payment requisition rejection requirements of the Massachusetts Prompt Pay Act, which applies to certain private construction projects. This decision affirms a final judgment in favor of the Contractor in the sum of $4,600,109.24.
This case was the Appeals Court’s first opportunity to interpret the Prompt Pay Act since it went into effect on November 8, 2010. In its decision the Court confirmed that Owners and upper-tier Contractors must strictly comply with all rejection requirements under the Prompt Pay Act, but held that failure to do so does not result in waiver of defenses to payment. The Owner / upper-tier Contractor must pay the requisition in real time, but can later seek to recoup the sums paid on other contractual or legal bases.
The Massachusetts Prompt Pay Act, G. L. c. 149, § 29E, applies to all private projects with a Prime Contract price of $3 million or more. It does not apply to public projects.
Under the Prompt Pay Act, every contract for construction, whether between the Owner and a Contractor, a Contractor and Subcontractor, or a Subcontractor and a lower-tier Subcontractor, must contain reasonable time periods for: (1) submission of written payment requisition (30 days); (2) approval or rejection of the payment requisition (15 days after submission with additional time permitted for lower tier subcontractors); and (3) payment of the approved amount (45 days after approval).
Rejections of payment requisitions must be: (1) in writing; (2) contain an explanation of the factual and contractual basis of the rejection; and (3) certify that the rejection is made in good faith. The statute includes similar requirements for rejections of written requests for contract price increases.
The Appeals Court focused its decision on the third requirement – the good faith certification – finding it to be “an essential component” of the legislation’s rejection scheme. Underscoring the importance of the good faith certification, the Appeals Court affirmed that a letter containing a long list of deficient work, including photographs, was not a proper rejection under the Prompt Pay Act simply because it did not contain a good faith certification.
This decision confirms that Massachusetts Courts will strictly construe all rejection requirements in assessing liability for payment under the Prompt Pay Act. So, as the Court said, “If an owner does not wish to make a periodic payment pending resolution of a dispute because it believes it will not in the end owe the money, it must file a prompt rejection in compliance with the statute.” Otherwise, the Owner or upper-tier Contractor must pay the requisition when it is due.
However, the failure to file a prompt rejection in compliance with the Prompt Pay Act does not waive the Owner or upper-tier Contractors’ ability to recoup payments made in real time. Owners and upper-tier Contractors may assert claims against lower-tier Contractors to recoup any money the Owner / upper-tier contractor may be owed. The failure to include defenses to payment in a “proper rejection under the statute” does not result in waiver.
As a result of this decision, Owners and upper-tier Contractors on private projects subject to the Prompt Pay Act must strictly comply with the detailed requirements of the statute when rejecting payment requisitions. A failure to do so can have significant consequences and may invoke a dangerous pay-and-chase process to recoup that money.
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