Earlier this year, the Associated Subcontractors of Massachusetts hired Robinson+Cole attorney Joseph Barra to submit an amicus brief to the Massachusetts Supreme Judicial Court for consideration in the appeal pending before it in Business Interiors Floor Covering Business Trust v. Graycor Construction  Co., Inc. In its June 17, 2024 decision in that case, the Court interpreted the Massachusetts Prompt Pay Act, which applies to private construction projects and “requires that parties to a construction contract approve or reject payment within” an allotted time period and in compliance with certain procedures else such payments will be deemed approved. Two years ago, the Massachusetts Appeals Court, in Tocci Building  Corp. v. IRIV Partners, LLC , decided that an owner who fails to timely advise its general contractor of the reasons as to why it was withholding payment, coupled with failure to certify that such funds are being withheld in good faith, violates the Prompt Pay Act and makes the owner liable for funds owed.[1] However, the Tocci Building Court left open the question of whether one who violates the Prompt Pay Act forfeits its substantive defenses to non-payment, such as fraud, defective work, or breach of material obligation of the contract.

The facts of Business Interiors involve a general contractor, Graycor, which subcontracted Business Interiors to perform certain flooring work for a movie theatre in Boston’s North End. When Graycor failed to formally approve, reject, or certify, in good faith, its withholding of payment of three of Business Interiors’ applications for payment as prescribed by the Prompt Pay Act, Business Interiors brought suit alleging, among other things, breach of contract. Business Interiors then moved for summary judgement arguing that Graycor’s failure to comply with the Act rendered it liable for the unpaid invoices.

Graycor argued to the Court that it had a common law defense (of impossibility, due to the project’s shut-down during the pandemic), and that the Prompt Pay Act should not preclude a general contractor from asserting common-law defenses to a breach of contract claim based on failure to pay. Noting that the Prompt Pay Act does not address common-law defenses, the Court found that it does not preclude all common-law defenses categorically. The Act does, however, require that payment of approved (or deemed approved) invoices must be made before such defenses can be raised. And because Graycor had not made payment before attempting to raise its defenses in litigation, the Prompt Pay Act did not permit the trial court to consider Graycor’s defenses to Business Interiors’ claims.

Practically speaking, the Court’s decision will allow parties to a construction contract to maintain the flow of project funds necessary to keep the project moving and compels the parties who dispute payment to raise those objections in a timely matter in accordance with the Prompt Pay Act.

This post was authored by Erica Whaley, candidate juris doctor, Roger Williams University School of Law. Erica is not yet admitted to practice law.

[1] Attorney Barra also submitted an amicus brief in Tocci Building.