Massachusetts Superior Court Strictly Enforces Prompt Pay Statute
Massachusetts Superior Court Judge Michael D. Ricciuti issued an important ruling that an owner's violation of the Prompt Payment Act's requirements would not be considered mere "technical violations." Rather, where the owner failed to follow the Act's rules regarding responding to payment applications, the applications were "deemed approved," and the contractor was entitled to judgement.
This is the first court ruling addressing the issue and offers important clarity on the 10-year old statute.
Prompt Payment Act 101
The Prompt Payment Act, G.L. c. 149 §29 E, sets out a detailed process for responding to payment applications and change order requests.
Owners have 15 days to respond to their contractor's payment applications, and 30 days to respond to change order requests (prime contractors have an additional 7 days when reviewing their subcontractors' applications and requests and the time frame is extended by 8 days for each tier down the chain).
Any rejection of a payment, in whole or in part, must be made in writing and include an explanation of the "factual and contractual" basis for the rejection. The response must approve undisputed items, and be signed and must "certify that the decision is made in good faith. If no proper objection is issued within the applicable time period, the payment application is "deemed approved" and payment must be made within the 45-day period. Rejection can still be issued during the payment period. The Act imposes similar requirements regarding the treatment of change orders.
Tocci Building Corp V. IRIV Partners, LLC
In Tocci Building Corp V. IRIV Partners, LLC, et. al., the court held that IRIV failed to protect Tocci's payment applications within the time period or in the format required by the statute. IRIV responded to the applications by e-mail and letter, but did not otherwise comply with the Act's requirements. As Judge Ricciuti wrote,
While they may have been timely in rejecting some of the Requisitions, they did not specifically reject a Requisition in dispute, did not include an explanation of the factual and contractual basis for the rejection, and did not include a certification that the rejection was made in good faith.
Judge Ricciuti went on to hold that these violations were not merely "technical errors." The requirements go to the very purpose of the statute and should be strictly enforced. As a result, the judge awarded separate and final judgement granting the contractor's contract claims.
The Bottom Line
This Order is only one judge's ruling, and is subject to appeal, but it lays out a well-written rationale and provides clear indication that courts are likely to strictly enforce the Prompt Payment Statute. Owners, contractors, and subcontractors should be keenly aware of the statute's requirements so that they can be prepared to enforce their rights, where necessary.