Boston – Governor Deval Patrick signed into law “An Act Promoting Fairness in Private Construction Contracts,” a bill put forward by the Associated Subcontractors of Massachusetts, Inc. (ASM) and otherwise known simply as the “Prompt Pay Law.” It is the most significant legislation affecting private construction since the reform of the state’s mechanic’s lien law in 1996.
The new law is the result of a nearly five year effort by ASM to address chronic payment delays in construction, a growing problem in the industry that has made it difficult for small construction companies to operate, particularly in the recession.
Companies typically wait three months, often longer, to receive payment for their work, while continuing to buy materials and pay workers weekly. This cash flow crunch puts such strain on small businesses that many have already closed their doors and others are at risk of doing so.
House and Senate leaders in the Massachusetts legislature recognized the damaging effect of slow payment and made passage of a Prompt Pay bill a priority in the final days of the legislative session. The bill had the support of 13 local trade unions and supply companies from across the state, as well as hundreds of subcontracting companies employing thousands of workers. Thirty-two other states currently have similar laws in place.
“Jobs and businesses were on the line here,” said Monica Lawton of ASM. “This legislation provides a fair, common sense approach to ensure companies and workers get paid—and get paid on time.”
The bill initially faced strong opposition from general contractors. But the final version represented a last-minute compromise achieved with the Associated General Contractors of Massachusetts. The new law is fair to all parties and holds all to the same level of responsibility, while giving all the same protection – whether owner, contractor, subcontractor or sub-subcontractor or vendor.
The new law sets reasonable time periods for processing payments on a project, both routine progress payments and, more significantly, payments for change orders, which are often held up for indefinite periods. It also all-but-eliminates the use of controversial “pay if paid” terms to avoid having to pay altogether; and it provides the right to stop work for nonpayment without risking breach of contract.
By requiring prompt decisions on approval (or rejection) of payment requests, and timely payment of amounts due, the law will keep funds flowing on projects, so that companies can continue to perform the work without delay, and keep people employed.
“This legislation will help prevent company closures and layoffs in the months ahead, and over the long term, will help restore fair dealing to an industry that has long been out of balance” said Richard Fisher of Red Wing Construction, Vice President on the Board of Directors and Chair of ASM’s Prompt Pay Task Force. “This is an important step to improve our industry, and help small businesses and their employees in this tough economy.”