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In this blog, presented by SunRay Construction Solutions and Chad I. Michaelson, Partner, Meyer, Unkovic & Scott LLP, construction professionals in Pennsylvania can learn in detail about how their contracts can help them ensure that they are successfully paid for the work they perform on the construction jobs.
Why Should You Read the Contract?
When it comes to contracts, a lot of people think that they should just sign the contract and get the work completed. However, not reading the contract thoroughly before signing it can lead to unfavorable situations for construction professionals, especially subcontractors and suppliers.
Typically, there are two choices: negotiate the contract or litigate.
You can either have a discussion upfront and come to an understanding with the owner or contractor and or you can ignore it and when a problem arises later, you can end up litigating it. Ideally, negotiation is preferable.
Here are some of the key elements that you should focus on while reading your contract:
A) Approval for Payment – The first thing that you need to check for is what is required for approval of payment.
• Owner’s Discretion – Do not agree that the work will be acceptable as per the owner’s discretion or the work will be reasonably satisfactory to the owner/general contractor. Ideally, the work should be performed as per the contract terms and once it is done, you should receive the payment. But many contracts often include that you will be entitled to payment if the owner is satisfied with the work, and that is something that you should not agree to.
• Lender Requirements – You also need to pay attention to lender requirements with regards to the timing of the payment and what all should be included in your payment application to satisfy the lender. Apart from the mandatory lien waivers, the lenders may also have some other requirements, so keep an eye out for them.
B) Timing of Payment – Next thing that you need to check for is the timing of payment. This timing is important for your cash flow purposes and to understand how and when you will be paid.
• Pay when/if Paid – Ideally, a pay when paid scenario is preferable than a pay-when paid scenario because it entitles you to a payment. The pay-if-paid means that you assume the risks that the owner is not going to pay. The contract language will clearly state whether it is a pay-when-paid scenario or a pay-if-paid scenario.
• If it is a pay-when-paid provision, then you would ideally get paid within 10 days after the higher tier contractor gets paid. But, if it is pay-when-paid, then the situation may not be favorable for you.
C) Retainage – Pay close attention to retainage and think about what they are holding as retainage.
• Is the retainage being held on things like your general conditions, insurance and bond costs, etc. To keep your cash flow progress smooth, you will want as little retainage as possible.
• Also, if you are a site work contractor, and you are done with your work well before the project completion, then you should negotiate a rate to get your retainage when your work is completed rather than signing a contract which states that the retainage will be released once the entire project is completed.
D) Lien Rights – Check your contract to see what it says about your lien rights. Most subcontractors will be asked to waive their lien rights.
• In Pennsylvania, a lien waiver is ineffective unless it is in exchange for payment received. There is no advance waiver of lien rights allowed in Pennsylvania. So, a general contractor cannot be asked to waive their lien rights unless they have been paid and subcontractors cannot be asked to waive their lien rights unless a payment bond is posted.
• However, there is one exception to this rule. If the general contractor posts the payment bond and records a notice of payment bond and a notice of waiver of liens in the county where the project is located, then that notice can waive the lien rights for subcontractors and suppliers.
• So, make sure that you check the project is a no-lien project or if there is a bond in place. If there is a bond, then you must get a copy of that bond upfront.
• Another thing that you need to look for is whether your project is a “Searchable Project”. A searchable project is a project valued at over one point five million dollars that the owner has filed with the Pennsylvania State Construction Notices Directory. You can go to their website and search for your project. But it is also mandatory as per the law to list it in the contract.
• If you see that your project is a searchable project, then subcontractors must file a Notice of Furnishing to protect their lien rights. If you don’t file this notice, you will lose your lien rights. If there is a delay in filing the notice, your lien rights will be limited to the services you performed within a reasonable time after filing the notice.
E) Changes Clause – Finally, you need to read your contract to look for changes clause, such as changes to the schedule, changes to the scope, etc.
• Some contracts will include waiving off rights for certain kinds of compensation, such as delay damages, impact damages, loss of productivity, etc. Make sure that you are reading it carefully and you are not waiving off your rights to get paid for any extra work.
After reading your contract thoroughly, you can negotiate these points and have a clear understanding with whoever you are contracting with.
Why Should You Follow the Contract?
Once your contract is ready, then the next thing to do is get the job done. But you must do it in a way that follows the agreed contract. Here are a couple of things that you need to focus on:
A) Applications for Payment
• Pencil copy process is useful as it avoids the rejection of payment applications. Submitting a quick payment application without putting too much thought into it can be problematic for you, so ensure that you are doing everything that is required.
• You also need to ensure that you are providing all the required supporting documents. This is also something that you should focus on while writing the contract. If the owner asks you for more documents but it is not written in the contract, then they cannot reject your payment application. But some contracts state that the application for payment will be supported by whatever documents the owner requires, and if that's the case, it gives the owner a lot of ability to hold up your payment to ask you for more.
• If there is any error in your payment application, then as per Pennsylvania’s Contractors and Subcontractors Payment Act (CASPA), the owner or the general contractor has to provide a written notice of the error in the payment application or invoice within 10 days.
• If the written notice is not provided within 10 days, then they cannot claim a waiver for such error.
B) Conditional Lien Waivers in Pennsylvania
• Conditional waivers are effective only when you are paid. So, if you get a lien waiver which says in consideration for the payment about to be received, then it is an effective lien waiver. Some people file a lien waiver along with the payment application before they get paid, but it will not be effective until the payment has been received.
• Keep an eye out for lien waivers on pending claims. Sometimes the lien waivers will not just waive your right to lien, but it might say that you release any claims that relate to the work for which you are being paid. You may realize you had impacts throughout the project or are still negotiating about certain changes, but you have already waived your lien rights.
• So, always ensure that you are signing the right lien waivers.
C) Processing of Payment
• You need to follow the contract in terms of the timing of processing the payments. If you are an owner making the payment, you have 14 days to make the payment and if you ae the general contractor then you have 10 days to make the payment once you receive it.
• You also must bear in mind that the terms of the contract will supersede the terms of CASPA. So, if CASPA says the payment must be made in 14 days, but your contract says it can be made within 30 days, then you will consider the timeline 30 days.
• If the owner or general contractor is going to withhold your payment because there are deficient items, effect work rework, etc., then they have to provide a written notice of withholding within 14 days. They must tell you in writing why the amount is being withheld and pay the rest.
D) Timely Notice of Claims in Pennsylvania
• Finally, you need to make sure that you are following the contract with regards to timely filing of notice of claims. For private projects, the contract will state when you must file the notice of claims, such as within 7, 10, 14, or 30 days.
• For public projects, it is even more important follow the notice requirements because there is a case law in Pennsylvania which states that a contractor cannot merely rely on what the engineer or other owner reps tell you. The only way you can be sure to receive payment for extra work is to have a change order signed and executed by the municipality or the government unit.
How Can You Protect Your Rights in Pennsylvania?
Let’s assume that you have read your contract and followed it as well, but you have still not been paid? How do you protect your rights?
A) Slow Payment
• When it’s a sow payment, you can check for the remedies available under CASPA. As per CASPA, the payment must be made according to the contract. But if the contract doesn’t say anything, then owner has 20 days to make the payment from the receipt of a proper payment application. The general contractor has 14 days to make the payment after they have received it from the owner.
B) Change Order Disputes in Pennsylvania
• If you have change order disputes that are slowing down the payment process, then you must ensure that the owner is aware that they are required to make the payment. Don’t let the undisputed change orders sit there and prevent you from getting paid.
• Ensure that you are aware of what your rights are when it comes to getting paid for changed work.
C) Retainage
• As per CASPA, the retainage has to be release 30 days after the final payment. Most contracts will release it at substantial completion. But depending on the nature of your work, you need to negotiate in your contract when that retainage is released, and you need to enforce it.
• If the owner is slow to release the retainage without justification, then there are remedies under CASPA that you can use. You should notify the owner or the general contractor that they have a legal obligation to release the retainage in a timely manner.
D) Lien/Bond Claims
• Finally, your ultimate remedy is the ability to file a lien or bond claims. You need to pay attention to the timelines. In Pennsylvania, the timing for filing a lien is six months from the last day of work.
• The last day of work is when you have reached substantial completion or the last scope of work. It does not include warranty or punch list work.
• But if you do not have a direct contract with the owner, for example, if you are the subcontractor or supplier, then you have to give a preliminary notice in order to file your lien. This notice should be sent 30 days before you file your lien. What this means is that as a subcontractor or supplier, you have only five months to file your lien.
• It is recommended that you do not wait until the last moment to send out your notice of intent to lien. If you miss out on the timeline, then you will not have any lien rights.
• Finally, we have bond claims. Bonds typically have similar timing requirements. The best practice is to look at the bond to see what the exact timing requirements are and what are the other requirements you submit. If you don’t make a proper bond claim, it will either get rejected or it will delay the payment process.
• The language of the bond will tell you exactly what a claimant must submit and what are their rights under the bond. If you fail to comply with the bond requirements, then you will lose your rights to file any bond claims.
These are some of the key tips that can help contractors, subcontractors and suppliers in Pennsylvania get paid successfully for the work they perform. Although every project is different, following these tips can ensure that you protect your payment rights and get paid a little faster. Don't risk payment delays! Secure your rights with SunRay's legal experts. Call 800-403-7660 today and get paid what you deserve.
FAQs
Who needs to send a Pennsylvania Notice of Furnishing on private projects?
In Pennsylvania, subcontractors and suppliers who have not directly contracted with the property owner need to send a Notice of Furnishing to preserve their right to file a mechanics lien. This notice serves as a formal notification to the property owner and other relevant parties that the subcontractor or supplier is providing materials or labor for the project.
What’s the deadline to send a Pennsylvania Notice of Furnishing?
In Pennsylvania, the deadline to send a Notice of Furnishing varies depending on the type of project.
- For residential projects, subcontractors and suppliers must send the Notice of Furnishing within 45 days of first providing materials or labor to the project.
- For commercial projects, subcontractors and suppliers must send the Notice of Furnishing within 45 days of first providing materials or labor to the project, or within 45 days of the owner filing a Notice of Commencement, whichever occurs first.
It's crucial to adhere to these deadlines to protect one's lien rights in Pennsylvania.
How to amend a Notice to Commence in the state of Pennsylvania?
To amend a Notice of Commencement in Pennsylvania, you typically need to follow these steps:
1.Review the Original Notice of Commencement: Before making any changes, carefully review the original Notice of Commencement to understand what information needs to be amended.
2. Prepare the Amendment Document: Create a new document that clearly indicates it is an amendment to the original Notice of Commencement. Include the necessary changes, such as updated information on the property owner, contractor, or project details.
3. Notarize the Amendment: In Pennsylvania, Notices of Commencement typically require notarization. Ensure the amendment document is signed and notarized properly.
4. Distribute the Amended Notice: Send copies of the amended Notice of Commencement to all relevant parties, including the property owner, general contractor, subcontractors, suppliers, and any other stakeholders involved in the project.
5. File the Amended Notice (Optional): While not always required, you may choose to file the amended Notice of Commencement with the appropriate county recorder's office where the original Notice of Commencement was filed. This helps ensure that all parties have access to the most up-to-date information about the project.
6. Retain Documentation: Keep a copy of the amended Notice of Commencement for your records, along with any proof of delivery or filing.
