Massachusetts Trial Court Strictly Applies Prompt Pay ActJanuary 22, 2021
Tocci Building Corp. v. IRIV Partners, LLC et al.
On November 19, 2020, the Suffolk County Superior Court (Judge Ricciuti) issued a decision strictly applying the payment requisition rejection requirements of the Massachusetts Prompt Pay Act, which applies to certain private construction projects. The Court found in favor of the Contractor and issued a final judgment in the sum of $4,600,109.24.
The Court examined whether Owner letters sent to the Contractor regarding outstanding payment requisitions contained sufficient information to be deemed written rejections of payment requisitions as required by the Prompt Pay Act. The Court found that the letters and emails did not meet the statutory requirements for rejection (even if they were sent in a timely manner).
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.
In this case, the Owner’s emails and other letters to the Contractor failed to specifically reject the payment requisitions in dispute, did not explain the factual and contractual bases for rejection, and did not include a certification that the rejection was made in good faith. These failures were not merely technical deviations from the statute; they were fatal to the Owner’s attempted rejections, effectively waiving any objections that the Owner may have had to the payment requisitions under the Contract.
Strictly applying the language of the statute, the Court deemed all payment requisitions approved and issued a final judgment on this issue in favor of the Contractor. The Court did not address whether willful violations of the Prompt Pay Act also constitute violations of Chapter 93A.
The decision underscores the notion that the Prompt Pay Act means what it says and suggests that Massachusetts courts will enforce the statute in strict accordance with its terms. The Court noted that the parties cannot contract around the statutory requirements. As a result, Owners and Contractors on private projects subject to the statute will need to strictly comply with the detailed requirements of the statute to ensure that valid objections to payment claims are preserved. A failure to do so can have significant adverse consequences.
For additional information related to this article, please contact John P. Connelly, Robert T. Ferguson, Jr., Alexandra A. Gordon, or any member of our Construction & Public Contracts Group practice group.