Hugh J. Gorman, III
New Law Applicable to Large Private Construction Projects
by Hugh J. Gorman, III
On August 8, 2014 Governor Patrick signed into law The Fair Retainage Payment Act relating to private construction contracts. The act impacts owners, general/prime contractors, subcontractors, and suppliers on projects where the prime contract is $3 million or more and is not a residential project of four units or less. The act is codified at M.G.L. c.149, § 29F and takes effect November 6, 2014.
The Act specifies that no construction contract may provide for retainage that exceeds 5% of any progress payment and prescribes the timing and processes to be followed to establish project substantial completion, an application for, and the payment of, retainage.
Within 14 days of achieving project substantial completion, the prime contractor must submit to the owner its “Notice Of Substantial Completion” in the form provided in the new statute (the “Notice”). Upon receipt, the owner has 14 days to accept or reject the Notice or it is deemed accepted. If the owner rejects the Notice, it must provide the factual and contractual basis for same and certify that its decision was made in good faith. Within seven days of rejection, the prime contractor must commence dispute resolution with the owner pursuant to the terms of the contract. The statute also contains provisions requiring the owner (to prime contractor) and thereafter the prime contractor (to subcontractors and suppliers) to provide a punch list within 14 and 21 days of the date of substantial completion respectively.
Following the expiration of 60 days after substantial completion or final and binding resolution of a dispute, an application for payment of retainage may be submitted together with certification that the applicant has completed, repaired, and delivered the full scope of its work/materials. Subject to withholdings of amounts permitted by section (g) of the statute, the retainage shall be paid not later than 30 days following submission of the application plus an additional seven days for each subcontractor tier under the prime contractor. In the event that the prime contractor has not been declared in default of its contract with the owner, the owner may not withhold retainage from a subcontractor which is not based on that subcontractor’s failure to perform, incomplete, or defective work.
Like the Prompt Payment Act before it, the Fair Retainage Payment Act defines and codifies the payment terms and conditions between all parties working on large private construction projects relating to withholding and payment of retainage. The Act’s provisions relating to the establishment of project substantial completion and dispute resolution thereafter warrant immediate reconsideration of those provisions in both prime and subcontract(s) alike in order to determine whether to incorporate “special” dispute resolution provisions for these issues as well as other retainage specific language.
Hugh Gorman is a partner at Prince Lobel Tye LLP in Boston.
