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05/1999 |
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Paul S. Sugar Appeared in ABC Newsletter / Baltimore Chapter Contractors and subcontractors are entitled not only to be paid for their work, but also to be paid promptly. Although it has shortcomings, the Maryland Prompt Payment Act (PPA) sometimes can help. Under the right circumstances, the PPA can provide a big stick to the unpaid party. If payment of "undisputed amounts" is not made "promptly," the unpaid party is entitled to interest starting from the date the debt is due plus reasonable costs; and if the payment was withheld in bad faith, the unpaid party may recover its attorneys' fees. "Prompt payment" is defined differently for general contractors than it is for subcontractors. For general contractors, if the contract sets a time for payment, then the PPA remedies may be enforced if payment is not made within 7 days of that time. If the contract does not set a time for payment, then the owner must pay all "undisputed amounts" within 30 days of the earlier of taking possession or when the occupancy permit is granted. Subcontractors (and all lower tier subs and suppliers) don't fare as well as general contractors. They are not required to be paid until seven days after the contractor tier above it is paid, which sounds suspiciously like a paid if paid clause. The PPA applies only to "undisputed amounts." An "undisputed amount" is an amount over which there is no good faith dispute. One seeking enforcement of the PPA should expect the defendant to assert that there is a good faith dispute that the amount claimed is owed. Defective or incomplete work is a typical excuse. However, if the party seeking payment can separate payment for the disputed work from the undisputed work, the PPA will apply to the payment for the undisputed work. In most cases, the PPA can be pursued only if a contractor or sub has mechanic's lien rights. For example, the PPA does not apply to a contract between a contractor and a public body. However, the PPA also does not apply to contracts for the construction and sale of a single family residential dwelling; any transaction under the Custom Home Protection Act or any home improvement by a MHIC licensed contractor. In some instances, the PPA is broader than the mechanic's lien law in its application. For example, even where a contract is for work in an amount less than 15% of the value of the building (where a mechanic's lien would be unavailable), the PPA still applies. The PPA does not affect a contracting party's mechanic's lien or contract rights and can be pursued as an additional count in a mechanic's lien or breach of contract action. Even though the Act has certain weaknesses, seeking its enforcement is a logical step to take and may yield big rewards. Add it to your arsenal of ways to get paid. Principal Paul S. Sugar and associate Jeffrey A. Regner are attorneys in the Baltimore office of Ober|Kaler's Construction Industry Group. Ober|Kaler is one of the oldest and largest firms on the east coast. It has more than 120 attorneys and offices in Maryland, Washington, DC and Virginia. |
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Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia
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