Construction Law | Residential | Commercial | Home Improvement | Contractor Sub Payment Act | Mechanic’s Liens

Residential and commerical construction disputes - sm

The prospect of twenty-four percent interest plus  penalties opens the door for abuse by unscrupulous  contractors and subs. Thus, the Pennsylvania  legislature created a remedy for the property owner  or sub relative to claims for violation of the Act. The  property owner or sub-contractor can withhold  payment where the owner or contractor timely  disputes payment for the deficiency item. There are  also procedures governing retainage. However, the  party withholding payment must act reasonably.

The Act addressed this scenario:

Withholding Payment. An owner may withhold  payment for deficiency items, or items not yet  satisfactorily completed in accordance with the terms  of the contract, provided that the owner notify the  contractor of the deficiency item within seven (7)  days after receiving the invoice. See Section 506.  Section 511 provides contractors with similar  protection as to claims made by subs.

Retainage. When a construction contract provides  for a retainage to ensure the contractor or  subcontractor’s full performance, the retainage must  be released to the contractor or sub within thirty (30)  days after final acceptance of the work. See Section  509. However, if an owner or contractor  unreasonably withholds acceptance of the work or  otherwise fails to pay the retainage, the party  withholding payments is subject to the same interest,  penalties and counsel fees noted above.
The Act expressly provides that the parties may  agree to waive the interest rate aspects of the  recovery.

Attorney fees and expenses can be awarded to the  substantially prevailing party “notwithstanding any  agreement to the contrary.” See Section 512. Thus,  even if parties to a construction contract agree to a  waiver of the one percent interest rate, the  unwaivable counsel fee provisions and the arguably  unwaivable penalty provisions should provide owners  and contractors with a significant incentive to pay the  amount owed.

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