24A — May 31 - June 13, 2013 — Owners, Developers & Managers — Mid Atlantic Real Estate Journal
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C onstruction L aw
By Robert R. Watson, Jr., Eastburn and Gray, PC “SO SUE ME”… Three simple words – but do you really mean that?
A
ll too often on the job- site, tensions flare over open payment claims.
and the underlying projects continue to move ahead to- ward completion. Occasionally, though, par- ties to a construction contract cannot reach agreement on a payment or series of payments. Few contractors, subcontrac- tors or suppliers can afford to let open payment issues linger for too long, and patience even- tually runs short. Whether the non-payment is due to issues totally under the paying par- ty’s control or not, if payment can’t be worked out, the all-to- familiar response “So sue me” eventually is injected into the conversation.
Admittedly, it is rare that the party seeking payment in a construction dispute is abso- lutely free of problems with its own performance, but by draw- ing the “So sue me” line in the sand I often wonder whether the party responsible for mak- ing payment truly appreciates the impact of the litigation it is inviting to be filed. The Delaware, Maryland, New Jersey and Pennsylvania legislatures have all recognized that on a privately-owned commercial project and most multiple-unit residential work, once a party to a construc- tion contract has completed
its work, the entity looking for payment is at an auto- matic disadvantage in that it has provided the labor and materials, but has not been paid. It is for this reason that Prompt Payment Acts have been passed to provide a level of protection to parties who supply labor or materials to a job in anticipation of future payment. While the specific statutory provisions vary from state-to-state, these Payment Acts generally provide timeta- bles for when payment can be expected absent clear payment terms in the parties’ contract. The statutes governing private
projects also generally state that if a contractor, sub or sup- plier is forced to file a lawsuit in order to collect payment otherwise due and owing, and the entity seeking payment is eventually held to be the substantially prevailing party, that claimant may also be en- titled to recover its attorneys’ fees and litigation costs, as well as interest and possibly penalties on wrongfully with- held balances. Pennsylvania and Delaware’s payment stat- utes go so far as to state that an owner or contractor with- holding payment for defective workmanship must provide timely notice of the intention to withhold in order to avoid liability under the Payment Act. New Jersey’s statute has a provision which allows stop- page of work under certain circumstances. This right to recover at- torneys’ fees and litigation costs on construction claims is unique, because ordinarily under the American system of justice, the parties to a dis- pute each must bear their own litigation costs. Under these statutes, where permitted, the award of attorneys’ fees is either mandatory to the sub- stantially prevailing party, or available to it upon a showing of bad faith by the payor. Another important aspect of the Prompt Payment Acts is the expressed or implied rule that if there is a deficiency in the entity seeking payment’s work, the paying party may not withhold more than is nec- essarily related to the dispute at hand. While the “So sue me” re- sponse may be a natural reac- tion of any owner or contractor being pushed into a corner on payment issues, the potential for stiff additional penalties which can come along with the other side’s decision to take someone up on that threat should never be overlooked. Unlike inmany other commer- cial settings, once payment on a construction project has been found to be wrongfully withheld, it can be too late to take back those three sim- ple words, even though they seemed to be such an obvious and basic knee-jerk reaction to a pushy contractor, sub or supplier’s demands for pay- ment months earlier. Robert R. Watson, Jr. is a shareholder of Eastburn and Gray, PC in its Blue Bell, PA office. n
Whether it is the result of an owner or general con- tractor’s cash flow issues, or a concern over work- manship or staffing, pay-
Robert Watson, Jr.
ment issues are a common occurrence on large and small construction projects. The majority of these disputes are hammered out between the contract parties themselves,
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