In a recent decision likely to have a significant impact upon the way private construction projects in Massachusetts are managed, the Superior Court recently construed the Massachusetts Prompt Pay Statute in the way the Statute (Statute) was meant to be enforced, but contrary to most current construction practice.

In Tocci Building Corp. v. IRIV Partners, LLC, Boston Harbor Industrial Development, LLC and Hudson Insurance Co., (November 19, 2020, Sup.Ct. 19-405), the Court strictly construed the Statute’s payment provisions against a project’s owner/manager (O/M), ordering the O/M to pay the contractor the outstanding balance on several unpaid requisitions because the O/M failed to comply with certain of the Statute’s requirements.

The decision involved the construction of a $3.8M building intended to house office and lab space in the Seaport. During construction, the O/M refused to pay certain portions of seven of the contractor’s requisitions. In response to most, if not all the requisitions, the O/M provided an e-mail or a letter rejecting the invoices in some fashion, but did not comply with the Statute’s exacting requirements for a proper response.  Specifically, the Court held, “While [the O/M’s responses] 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.”

Notably, the Court rejected the O/M’s claim that its failure to comply with the Statute’s requirements were “merely technical errors”.  In awarding the contractor relief, the Court exercised its seldom-used authority to enter separate and final judgment against the O/M–even though other issues in the case remained unresolved. When ordering the O/M to pay the contractor’s outstanding invoices, the Court reasoned that the Statute’s provisions are “mandatory…and reflect a public policy to ensure that contractors receive prompt payment, or prompt and complete notice of objections to payment requests….”  Equally important was the Court’s holding that “whatever objections [the O/M] may have had under the Contract to the Requisitions were waived”. (Emphasis Added.)

The following are only some of the lessons learned from the decision:

  1. Pay attention to the Statute’s detailed requirements: E-mails vaguely objecting to or commenting upon deficiencies in a contractor’s pay requisitions are simply not enough to satisfy the Statute’s requirements.
  2. Underlying entitlement is not a factor in the Statutory analysis: While it is not clear from the decision as to whether the contractor was truly entitled to full payment on each of its requisitions, the Court’s reasoning demonstrates that entitlement was not a factor the Court considered when analyzing the Statute’s applicability and enforcement.
  3. The decision applies equally to contractors, construction managers, and subcontractors: While the decision applies fundamentally to an owner’s failure to properly respond to pay requisitions, the Statute has plenty of tripwires for contractors and subcontractors who seek to enforce their rights for payment, change orders, etc. The Court’s strict enforcement of the Statute’s requirements means that each of the primary parties to a project will be held to the letter of the law.
  4. An owner who fails to comply with the Statute waives its right to assert contract-based objections to payment: In what may be considered the decision’s biggest takeaway, the Court’s holding appears to extinguish the right of an owner who has failed to comply with the Statute to object to a contractor’s request to be paid for defective work.  More specifically, the Court’s finding that “whatever objections a project owner may have had under the Contract to the Requisitions were waived” seems to imply that a contractor who bills for defective or non-conforming work will nevertheless be entitled to payment just because the owner failed to comply with the Statute’s requisition requirements.
  5. The Statute controls: While this concept wasn’t really the subject of significant debate within the construction bar, the decision puts to rest any doubt that when it comes to contract terms that may conflict with the Statute (or are not as strict as the Statute’s requirements), the Statute controls. Further, the Statute expressly disavows any attempt to contract away its terms or requirements.

The MA Construction Bar has been waiting for a decision interpreting how strictly the Statute would be interpreted since it was first adopted ten years ago. This decision is thus a loud warning bell for owners, their construction agents, their project managers and design professionals (who have construction phase responsibilities) as well as contractors, subcontractors and CM constructors to pay close attention to the Statute’s exacting requirements.

 

[1] Mr. Barra has devoted his career to representing owners, contractors, subcontractors, design professionals and other members of the built environment in drafting contracts, defending and prosecuting claims, and advising participants whose projects are in distress.  Mr. Barra also serves as a neutral construction arbitrator with the American Arbitration Association and is certified as a Mediator with The Conflict Lab in Pittsburgh, PA.

Robinson+Cole has committed to the Culture of CARE, an initiative created in partnership between the Associated General Contractors of America (AGC) and the AGC of Washington to advance the construction industry as the industry of choice for diverse and talented workers by building inclusive work environments in construction firms nationwide.

“At Robinson+Cole we have long fostered an inclusive culture where the diverse backgrounds of all of our attorneys and other professionals are respected and each individual is empowered to succeed. That culture carries through to our client and community relationships,” said Gregory R. Faulkner, Chair of the Construction Law Group at Robinson & Cole LLP and Board Director of the AGC of Connecticut. “We are proud to join our clients and colleagues in the construction industry to build a culture that is diverse, safe, welcoming and inclusive for all.” Read more in the press release.

Below in an excerpt from an article published in Construction Executive on December 8, 2020. 

The global COVID-19 pandemic has changed the world forever, disrupting many industries, as well as creating unprecedented challenges that threaten many businesses. The construction industry is no different. Projects throughout the country have been adversely affected by unplanned work stoppages, delays, disruptions to the supply chain, price escalations and other unanticipated events.

It is critical that owners, developers, contractors and suppliers learn from their experiences over the past year and account for the COVID-19 pandemic when drafting and negotiating contracts for their projects. Read the full article.

Passed in 2010, the Massachusetts Prompt Pay Statute imposed specific requirements on owners, contractors and subcontractors of private projects over $3M with regard to submitting, processing and approving requests for payment and change orders.  A recent decision by the Massachusetts Superior Court entitled, Tocci v. IRIV Partners, LLC, et. al. has confirmed that Massachusetts Courts intend to strictly construe the Statute’s terms. In Tocci, the Court ordered the owner to pay the contractor disputed monies simply because the owner failed to timely and properly object to the contractor’s invoices. This decision will have serious and far reaching implications in the way large private construction projects in Massachusetts will be managed.

Overall Take-aways: The MA Construction Bar has been waiting for a decision interpreting how strictly the Statute would be interpreted since it was first adopted. Here, it is clear that MA court’s intend to strictly construe its terms. This decision is thus a loud warning bell for owners, their construction agents, their project managers and design professionals (who have construction phase responsibilities) to pay close attention to the Statute’s requirements. I believe that it will have serious and far reaching implications in the way private construction projects in Massachusetts (that are subject to the Statute’s requirements) will be managed. For your benefit, the following thoughts are prepared in a LESSONS LEARNED format:

  1. Pay attention to the Statute’s detailed requirements: E-mails vaguely objecting to or commenting upon deficiencies in a contractor’s pay requisitions are simply not enough to satisfy the Statute’s requirements.
  2. Underlying entitlement is not a factor in the Statutory analysis: While it is not clear from the decision as to whether the contractor was truly entitled to full payment on each requisition, the Court’s reasoning demonstrates that entitlement is not a factor that will be considered when analyzing the Statute’s applicability and enforcement.
  3. Pleading the Statute’s violations is not a requirement to enforcement: I was a little surprised by this. Nevertheless, it appears that even a failure to plead the Statute’s application or its remedy is not an obstacle to recovery.
  4. Unpaid contractors can’t waive the Statute’s applicability: It appears that a contractor need not insist that an owner provide the statutorily required explanation for its non-payment in order to take advantage of the Statute’s protections.
  5. An owner who fails to comply with the Statute waives its right to assert contract-based objections to payment: This is huge. The decision states on the bottom of p.12 that “whatever objections a project owner may have had under the Contract to the Requisitions were waived.” (Emphasis added). Thus, to the extent a contractor installs work that fails to follow the plans or specs and bills for its defective or non-conforming work, it will nevertheless be entitled to payment just because the owner missed a deadline, failed to include an adequate explanation as to why it is not paying, or failed to certify its rejection as being in good faith.

Excerpt of a contributed article published in ISHN magazine on December 4, 2020.

When state and local governments across the country began issuing stay-at-home advisories in response to the beginnings of the COVID-19 pandemic in the spring of 2020, many private employers directed their personnel to begin working from home to the extent possible in an effort to assist with slowing the spread of the novel coronavirus. However, for many it was simply not possible to continue with business as usual in a remote work environment. Remote work is often not an option for those with hands-on and in-person work to do, such as retailers, healthcare professionals and many of those employed in the construction, manufacturing and energy industries.

Employers and employees in these and other similarly-situated industries rapidly adapted, using a number of strategies such as mask wearing, increased hand washing and facility cleaning, shift staggering and other PPE-centric and social-distancing techniques.

However, as we approach the one-year anniversary of the start of the COVID-19 pandemic, it is becoming increasingly clear that many of the strategies being adopted in all sectors of the economy and public life for dealing with the pandemic are here to stay. The realization that the length of the pandemic will be measured in months, or even years, rather than weeks, has prompted many to consider how these adaptations can be implemented in a more permanent way as a part of the “new normal,” including in strategies fundamental to business operations such as the design, construction and operations planning of commercial facilities. Read the full article.

This post was authored by Jonathan Schaefer, who is a member of Robinson+Cole’s Environmental, Energy + Telecommunications Group. Jon focuses his practice on environmental compliance counseling, occupational health and safety, permitting, site remediation, and litigation related to federal and state regulatory programs.

The results of a recently published study show that construction workers in Texas were more likely to be hospitalized with COVID-19 compared to the general population. An equally problematic finding is that the increased hospitalization of construction workers resulted in greater community spread of COVID-19. This study and its findings are a much-needed reminder to stay vigilant and continue to monitor and enforce COVID-19 safety precautions and guidelines. Continue Reading Study Findings Reinforce Need for Construction Industry to Stay Vigilant and Committed to COVID-19 Restrictions and Protecting Workers

Pacta sunt servanda, i.e., agreements must be kept. This applies in both good economies and bad.

Companies considering a modification of their business operations to offset lower revenue must be mindful of existing commercial contracts. Implicit in almost every New York agreement is a covenant of good faith and fair dealing in the course of performance. Output and requirements contracts are an exception, however. With an output contract, the parties agree that the seller will sell all the goods or services it may produce to a buyer in exchange for the buyer’s agreement to purchase them. A requirements contract obligates the buyer to purchase what it needs or requires from a seller in exchange for the seller’s promise to supply the buyer.

Where an agreement is neither an output nor a requirements contract, then both parties have continuing obligations throughout the term. The defenses of “impossibility” and “frustration of purpose” excuse performance in only the rarest of circumstances. What may seem like an obvious obstacle may not meet the threshold. A company that fails to understand the nature of its agreement or is unfamiliar with the applicable case law is exposed to significant monetary penalties. As a leading New York case has made clear, this counts for real estate development and hotel contracts as well. Continue Reading Repurposing Real Estate Development to Counter Weakened Demand: Know the Risks Before Terminating Contracts

Robinson+Cole’s Construction Law Group hosted its first industry-wide, virtual roundtable on the topic of diversity and inclusion (“D&I”) on September 17, 2020. The program grew out of an earlier Roundtable conversation and focused specifically on strategies and techniques to promote diversity and inclusion in the construction industry. Recognized diversity & inclusion program leaders across the northeast area from government agencies, construction industry organizations, contractor and sub-contractor firms, suppliers, and architectural and engineering firms joined the closed-panel, working-group discussion. Continue Reading Robinson+Cole Hosts Roundtable on Diversity & Inclusion

Synchronicity

A connecting principle,

Linked to the invisible

Almost imperceptible

Something inexpressible.

Science insusceptible

Logic so inflexible

Causally connectable

Nothing is invincible.

“The Police”, 1983.

This week, in response to the emergence of COVID-19 hot spots in downstate New York, Governor Cuomo instituted a new “cluster action initiative” to “crush” the clusters and contain the spread. New rules and restrictions, to be “in effect for a minimum of 14 days”, are designed to directly target “areas with the highest concentration of COVID cases and the surrounding communities.” Continue Reading Finding Synchronicity Between Governor Cuomo’s New Cluster Action Initiative and the NYC DOB’s Corresponding Requirements

As our previous post stated, the commercial use of drones, or small unmanned aerial systems (sUAS), for urban real estate and construction has gained some traction with the passage of the New York City Council’s bill requiring the Department of Buildings (DOB) to study the feasibility of using sUAS to inspect building facades. With this new bill, as well as other metropolitan cities surely following suit, one of the biggest issues on the forefront for the public at large is privacy. Continue Reading Guidance on Using Drones for Real Estate and Construction in Dense Cities: How Much Does the Public Value Privacy? (Part II)