Signed by Mass. Gov. Deval Patrick on August 10, 2010, Massachusetts' new "prompt-pay" law will fundamentally affect payment terms on private construction projects. The law1 becomes effective on November 8, 2010, and applies to all projects that entered into their prime contracts on or after that date.
The prompt-pay law will govern all construction projects greater than $3 million (except for one- to four-unit residential projects). It establishes a new section 29E in chapter 149 of the Massachusetts General Laws.
The primary elements of the new law include:
- Timetable for action upon pay applications (requisitions)
- Timetable for payment
- Timetable for action on proposed change orders
- Timetable for seeking payment of change-order work
- Standards for disapproving pay applications and changes
- Severe restrictions on conditional payment ("pay-if-paid") clauses
- Statutory language to be included in contracts
Pay Application Processing. Periodic pay requests must be accepted at least every 30 days. Approval or rejection must occur within 15 days, with an additional seven days allowed for every tier below the prime. Payment must be made within 45 days of approval. A failure to act on a pay request will be deemed approval, unless it is rejected prior to the date for payment. Any rejection must be in writing, stating the "factual and contractual basis," and must be "certified as made in good faith."
Change-Order Processing. Approval or rejection must occur within 30 days of submission of the request or commencement of work, whichever is later. Failure to act will be deemed approval, unless rejected prior to the date for payment. Any rejection must follow the same standards noted above for action on a pay request—in writing, stating the factual and contractual basis, and certified as made in good faith. If deemed approved, the change-order amounts may be submitted for payment in the next-following pay request.
Conditional Payment Clauses. Pay-if-paid clauses will now be "void and unenforceable," unless:
- Money has not been paid due to nonperformance by the person seeking payment, who has received written notice of the default and has failed to cure; OR
- The payor is insolvent or becomes insolvent within 90 days after the pay request is made, AND the party seeking to enforce conditional payment terms has (a) filed a notice of contract, and (b) is pursuing "all reasonable legal remedies" to recover payment "unless and until there is a reasonable likelihood such action will not result in obtaining payment."
Other Requirements. The limitation on the conditional payment clause must be stated in the clause. Contract terms requiring a party to continue performance when payment is overdue by at least 30 days will be "void and unenforceable"—again subject to disputes regarding quality of work or a notice of default. Contract terms purporting to waive or limit the effect of the new statute will also be "void and unenforceable." If the person seeking payment believes that an upper-tier company is not diligently pursuing legal remedies, that person can utilize the expedited procedure in the lien statute1 for a determination of the same, after making a written request for delineation of the legal remedies being pursued.
About Duane Morris
Understanding that section 29E presents many nuances to be considered, Duane Morris's construction attorneys are conducting a "Breakfast Briefing on Massachusetts' Prompt Pay Law" on Tuesday, September 14, 2010.
For Further Information
If you have any questions regarding this Alert or would like more information about Massachusetts' prompt-pay act, please contact Stanley A. Martin, Michael B. Donahue, any member of the Construction Group or the attorney in the firm with whom you are regularly in contact.
Note
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.