Court Enforces Prompt Pay Act
It’s been almost 12 years since the Massachusetts Prompt Payment Act (Act) was enacted to ensure prompt payment of periodic payment applications on private construction projects costing $3 million or more. The Act established the maximum time periods (which can be shortened by agreement) for approving and rejecting payment applications (15 days) and for payment (45 days after approval). The Act requires that the rejection of a payment application must be in writing and must include an “explanation of the factual and contractual basis (sic) for the rejection and shall be certified as made in good faith.” As mandated by the Act, failure to timely reject an application means that the application is “deemed . . . approved.”
In the 12 years since the Act’s enactment until now no Massachusetts appellate court has interpreted the Act’s provisions, including what owners, contractors and subcontractors alike are required to do in order to avoid having a periodic application “deemed . . . approved.”
On June 7, 2022, the Massachusetts Appeals Court in Tocci Building Corp. v. IRIV Partners, LLC, et al. (Nov. 19, 2020), Super. Ct. No. 19-405 upheld a trial court judge’s decision that IRIV Partners and Boston Harbor International Development, LLC (IRIV) – the owners of a project located at 654 Summer Street in South Boston – missed the deadline established by the Act for rejecting several million dollars worth of Tocci Building Corporation’s (Tocci) periodic payment applications, and also failed, in many cases, to provide a written explanation of the factual and contractual bases for rejection of the applications and to include a certification that the rejection “was made in good faith.” In particular, the Appeals Court rejected IRIV’s argument that the Act’s certification requirements were “merely ministerial” as “to do so would be to read the requirement out of the statute.” The Appeals Court also stressed the importance of the certification requirement to ensure “not only that the owner be deliberate about rejecting applications for periodic progress payments, and . . . it takes care to reject them only in good faith, its presence . . . also provides a clear indication . . . that an application has been rejected” so the contractor can invoke the dispute resolution remedies contained in the Act.
The Appeals Court’s decision sends the clear message that the Act’s provisions, especially the severe penalty of “deemed approval” of a requisition, will be strictly enforced and the Act’s rejection requirements must be strictly followed. However, the decision will likely not be the last word on the Act’s payment approval and rejection provisions. As the Appeals Court noted, IRIV claimed that Tocci breached its contract and was in default for failing to supply sufficient workers and to maintain the project’s schedule. Although the Appeals Court determined that IRIV could not withhold the periodic payments at issue in the case, the Appeals Court did not hold that IRIV’s claims against Tocci for breach of contract were waived by IRIV’s failure to include them in a proper rejection, and that IRIV “may recoup any money that may be owed.” What also remains unanswered by this case is whether “deemed approved” of a periodic requisition constitutes a waiver of claims for e.g. faulty workmanship for which payment was requested in the “deemed approved” payment application.