Contractor and Subcontractor Payment Act Not Applicable to Public Works Project

In a decision issued last week in Clipper Pipe & Service, Inc. v. Ohio Casualty Insurance Company, the Pennsylvania Supreme Court concluded that the Contractor and Subcontractor Payment Act, 73 P.S §§ 501-516 (CASPA) does not apply to contracts or subcontracts in the context of a public works project. Accordingly, CASPA is inapplicable even to disputes between contractors and subcontractors that do not involve the public entity for which the public works project is constructed.

The meaning of the term “owner,” as used in CASPA and the separate statutory regime of the Commonwealth Procurement Code were pivotal to the court’s analysis. CASPA defines an “owner” as “a person who has an interest in the real property that is improved.” “Person,” in turn, is defined as a “corporation, partnership, business trust, other association, estate, trust foundation or a natural individual.” Noting that this definition of person does not reference any governmental entity, the court determined that a governmental entity is not an owner under CASPA. The court then reasoned that, where there is no “owner” for purposes of CASPA – because a “person” did not commission the construction – there can be no “contractor” under the statute since a contractor must be engaged by an “owner.” Thus, a subcontractor to a contractor that was engaged on a public works project cannot invoke CASPA.

Additionally, recognizing that the legislature had enacted a separate statutory scheme for public works project, specifically, the Commonwealth Procurement Code or “Prompt Pay Act,” 62 Pa.C.S. §§ 3931-3939, the court opined that it would be untenable to apply both that act and CASPA simultaneously to a construction project.

There are significant differences between CASPA and the Prompt Pay Act regarding the timing for provision of required notices, compare 73 P.S. § 511 with 62 Pa.C.S. § 3934; the rate of interest on delayed payments, compare 73 P.S. § 505 with 62 Pa.C.S. § 3932(c); and the burden of proof required for awards of penalties and attorneys fees, compare 73 P.S. § 512 with 62 Pa.C.S. § 3935. Consequently, whether or not the underlying construction project is a public works project undertaken by a governmental entity dictates the applicability of either CASPA or the Prompt Pay Act and, as a result, the requisite procedures and remedies associated with payment disputes.

For more information, contact Matt Hoffman.