By: Christopher W. Morog and Robert T. Ferguson, Jr.

For those of you who may have missed the Webinar, we outlined important aspects of the Massachusetts Prompt Payment Act (PPA) applicable to private projects with a prime contract value of $3 million or more. If the project falls within the scope of the PPA, then the requirements of the statute apply not only to the prime contract, but also to subcontracts and sub-subcontracts. Contract terms that conflict with the PPA are deemed to be void and unenforceable.

Generally speaking, the PPA sets strict time limitations for the submission, approval/rejection, and payment of: (1) written applications for periodic progress payments; and (2) written requests seeking an increase in the contract price. In order to reject (in whole or in part) an application for payment or a request for an increase in the contract price, a contracting party must make the rejection in writing, provide the factual and contractual basis for the rejection, and certify that the rejection is made in good faith. Contracting parties that fail to comply with the statutory requirements run the risk that a given application for payment or request for an increase in the contract price may be deemed to have been approved.

This was the subject of a recent Superior Court decision in Tocci Building Corp. v. IRIV Partners, LLC, et al. In that case, the project owner did not properly reject the contractor’s applications for payment; the owner did not provide written rejections stating the factual and contractual bases for rejection and did not certify that the rejections were made in good faith. As a result, the Superior Court deemed those applications to have been approved and issued an award in favor of the contractor in the amount of the payment applications. The case is on appeal.

Our discussion of the PPA also addressed the related Retainage Law, which also generally applies to private projects with a prime contract value of $3 million or more. That statute caps retainage on progress payments at 5% and establishes a detailed procedure for the release of retainage.

When it comes to public projects, we examined the statutory provisions of M.G.L. c. 30, § 39G (applicable to horizontal projects), § 39K (applicable to vertical projects), and § 39F (addressing payment to subcontractors, as defined in the statute). Generally speaking, Sections 39G and 39K provide for payment to contractors, as well as the application of interest on late payments. The statutes contemplate that an awarding authority may withhold 5% retainage from periodic progress payments in addition to other retentions (including at the substantial completion stage). Section 39F – applicable to certain statutorily-defined subcontractors – generally calls for the general contractor to pay subcontractors “forthwith” after receiving payment for the subcontractors’ work. The statute provides that payment by the awarding authority is “for the account” of subcontractors and empowers awarding authorities to take “reasonable steps to compel the general contractor to make each such payment to each such subcontractor.”

In addition to the statutory scheme, retainage issues on public projects can vary from one awarding authority to another. For its part, MassDOT includes a provision in its Standard Specifications that precludes contractors from withholding retainage on any subcontracts. But not all awarding authorities follow the same approach. In addition, some contracts – including certain MBTA contracts – may not be subject to the statutory requirements of Chapter 30, §§ 39G, 39K, and 39F. As a result, when navigating payment issues on public projects – including with respect to retainage – it is critical to understand the applicable statutory scheme, as well as the specific provisions of the contract documents for each particular project, including without limitation, any project specific addenda, or supplemental or special provisions.