Prompt Pay Law Enforced Against Non-Paying Project Owner

A Massachusetts court has entered summary judgment against a project owner who failed to follow the terms of the prompt payment act. Judgment has been issued in the amount of $4,600,109, for payment shortages or non-payment on seven requisitions. Judgment was entered even though it is possible there may have been meritorious defenses of the owner!

The prompt payment law, enacted in 2010 and applicable to private projects over $3 million, has four essential components for periodic requisitions:

1. Requisitions must be approved or rejected within 15 days, and payment issued within 45 days thereafter. (Many contracts have shorter timeframes for payment, and this element is not controversial.)
2. Requisitions not properly rejected will be deemed approved with the passage of these time periods. This became a critical issue in the lawsuit.
3. Withholding or rejection must be done in writing, with the “factual and contractual” bases stated, and this action must “be certified as made in good faith.”
4. Any contract term “which purports to waive or limit any provisions of this section shall be void and unenforceable.” Parties cannot contract around these obligations.

In the case reported, the contractor submitted seven requisitions in a row where the owner withheld some portion, and subsequently all, of the amounts sought. At no time did the owner provide the written response required by the prompt pay law. There were communications (letters and emails) where the owner requested backup or other information, but none providing the factual and contractual reasons for the owner’s actions. Much less any communication containing the certification of good faith.

In the lawsuit, the contractor filed for partial summary judgment for the value of the amounts withheld/unpaid on the seven requisitions. Many readers will recognize that this step is very unusual in construction litigation, as there are typically competing factual positions. But the judge hewed to the prompt pay law requirements, and the owner’s failure to follow point 3 above meant that the requisitions were deemed approved (point 2). And thus due and payable, regardless of defenses.

In the lawsuit, the owner filed a counterclaim against the contractor, and this counterclaim was part of the owner’s response to the contractor’s motion. But the judge held that the owner’s failure to follow the prompt pay law resulted in requisitions being “deemed to be approved” per that law. Depending on one’s perspective, a very harsh outcome or just desserts. The case is Tocci Building Corp. v. IRIV Partners, LLC, et al, Suffolk Superior Court C.A. No. 19-004-5 (Nov. 19, 2020) (paywall).