Project Owner’s Procrastination Presents Prompt Payment Pitfalls

Commercial construction projects of $3 million or more are subject to the Prompt Payment Act,
G.L.c. 149, §29E (“PPA”), which ensures prompt payment, or resolution, of disputes about,
invoices for periodic payment made by contractors during the course of work. It requires
owners to approve or reject periodic payment requests within 15 days after submission and
issue payment within 45 days after approval. Rejections must be in writing; specify the factual
and contractual basis for the rejection; and be certified as made in good faith.

In Tocci Building Corporation v. IRIV Partners, LLC, et al., Docket No.: 21-P-393 and 21-P-733,
the PPA was construed for the first time by the Appeals Court.

IRIV hired Tocci as the general contractor to construct a commercial building. During
construction, Tocci submitted seven different progress payment applications. IRIV failed to
reject within the time or manner prescribed under the contract and statute and didn’t explain
the factual and contractual basis or have a good faith certification. When Tocci sued, the judge
determined that Tocci’s applications were deemed approved because IRIV didn’t comply with
the PPA. On appeal, IRIV argued that the judge’s order and judgment were in error and IRIV was
justified in withholding payment based on Tocci’s alleged breach. However, statutory
compliance was the main issue and the Appeals Court held that the legislative objective of
ensuring “prompt payment or rejection-and-resolution” would be undone if IRIV was permitted
“to retain the moneys wrongfully withheld in violation of the statute until the final resolution of
their postcompletion contract action” because “[t]he point of the legislation is that these
payments may not be withheld, even on valid grounds that they are not due because of a
breach of contract, unless a timely rejection is made in compliance with the statute.” The
decision did not waive IRIV’s claims for breach of contract because they were not included in a
proper rejection under the statute. It doesn’t bar such claims or require payment for
incomplete or substandard work. Payment is properly withheld if in writing with a good-faith
certification and timely.

The time periods for each application shall not exceed: (i) for submissions, 30 days, (ii) for
approval or rejection, 15 days after submission, and (iii) for payment, 45 days after approval. If
no approval or rejection within 15 days, the application will be deemed to be approved.

Similarly, strict compliance is required for proposed change orders involving increased costs for
materials and labor or extensions. For delays from COVID-19 or other unforeseen events, by the
time construction commenced or resumed, the cost of materials and labor increased forcing
many contractors to renegotiate the contract price. §29E(d) requires such requests be paid or
rejected within 30 days of submission; and failure to respond is deemed an approval.

Parties must also pay close attention to their contract, which may establish detailed procedures
to be followed in order to recover costs for extra work or added expenses, especially where the
failure to strictly follow those procedures precludes the contractor from being reimbursed.

LawrenceLynch Corp. v. Department of Envt’l Mgmt., 392 Mass. 681, 686 (1984); see Glynn v.
City of Gloucester, 21 Mass.App.Ct. 390, 395, rev. den., 396 Mass. 1107 (1986) (contractor’s
failure to invoke its remedies under agreement precluded recovery).

In compliance with the PPA, if an owner rejects either a periodic payment request or a change
order request, the rejection must be timely, whether in whole or in part. Further, the rejection:
(i) must be in writing, (ii) include an explanation of the factual and contractual basis for the
rejection, and (iii) be certified as made in good faith.

When contracting under the PPA, remember that procrastination equals payment. If there is a
dispute under the statute, the strict compliance – not the merits of your justification for
withholding payment – are paramount to recovering costs upon completion.