In a closely-watched, hotly-disputed case, the Massachusetts Appeals Court has enforced critical elements of the state’s prompt pay act (PPA). As a result, the contractor was entitled to judgment against the project owner for the amounts not paid, even though the owner has substantial claims pending against the contractor. In a nutshell, the court held that “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 PPA requires that any reduction or rejection of a requisition include a written statement of the “factual and contractual” basis, and also “be certified as made in good faith.” The Appeals Court noted that “submission of a proper periodic request for payment does not require its approval.” But any reduction or rejection must follow the PPA protocol.
The owner argued that communications, which included a notice of default issued to the contractor, provided the substance of a proper response. But the Appeals Court did not agree:
The defendants argue that the requirement of a certification is merely ministerial, but the plaintiff and the amicus brief of the Associated Subcontractors of Massachusetts, Inc., argue that it is a critical requirement. The Legislature required this certification if a rejection is to be effective, and we are not free to ignore that requirement by deeming it merely ministerial — to do so would be to read the requirement out of the statute. In any event, the certification requirement is an essential component of the scheme set up by the statute. As this case reflects, on a complicated construction project, there may be an enormous amount of communication back and forth between the owner and the contractor. Much of it may touch on issues involving compliance with the contract, and much of it may touch on payment. The certification requirement ensures not only that the owner be deliberate about rejecting applications for periodic progress payments, and that it takes care to reject them only in good faith, its presence on a communication also provides a clear indication to the contractor that an application has been rejected, so that the contractor can know both that some response is needed and that time periods have been triggered for invoking what remedies are available.
The owner also argued that the trial court should not have entered separate and final judgment for the contractor, given the owner’s substantial counterclaims for defective work. The Appeals Court noted in response, though, that the owner’s claims had not been waived, and the court might ultimately conclude that the owner is entitled to recoup the money paid. But payment should be made in the interim if the PPA protocol had not been met:
To allow the defendants to retain the moneys wrongfully withheld in violation of the statute until the final resolution of their post-completion contract action would eviscerate the scheme for prompt payment or rejection-and-resolution created by the Legislature. The 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. If an owner does not wish to make a periodic payment pending resolution of a dispute because it believes it will not in the end owe the money, it must file a prompt rejection in compliance with the statute. Because the defendants here did not do that, they must pay what is due, even though their claims against the contractor have not yet been fully resolved. (emphasis added)
Thus, the owner’s failure to provide “factual and contractual” bases for withholding, and its failure to certify its position in writing as in good faith, meant that the contractor was entitled to payment – notwithstanding the owner’s claims against the contractor. Note that this language applies between owner and GC, and between GC and sub. The case is Tocci Bldg. Corp. v. IRIV Partners, LLC, 2022 Mass. App. LEXIS 47 (June 7, 2022).