06.20.2024 | Client Alerts | In The News

Massachusetts SJC Issues Prompt Pay Act Decision

This week, the Massachusetts Supreme Judicial Court made a significant stride in the realm of construction law by providing its first interpretation of the prompt pay act (G.L. c. 149 § 29E) in Business Interior Floor Covering Business Trust v. Graycor Construction Co., Inc. The prompt pay act establishes time standards for approving or rejecting payment applications on large construction projects. The court’s ruling clarified a crucial feature of the statute: if a party fails to comply with the deadlines, and the payment application “shall be deemed to be approved,” does the “deemed approval” negate all common law defenses to the subject payment? In a decision eagerly awaited by the construction industry, the court answered no, affirming that a party can preserve its defenses by making the payment before or contemporaneous with the defense.

Graycor served as general contractor for a movie theater project near Boston’s North Station. The owner went out of business during the pandemic and failed to pay its bills. Graycor, in turn, failed to pay some of its subcontractors and vendors but did not meet the statutorily mandated deadlines for rejecting specific payment applications. When a subcontractor sued for payment, Graycor asserted common law defenses.

The court’s decision in Graycor has far-reaching implications. It held that a prompt pay act violation does not automatically waive common law defenses. However, the majority clarified that violating the act “must have meaningful consequences” and conditioned the right to pursue such defenses on payment of the “deemed approved” payment application. The concurrence-dissent, on the other hand, found no statutory authority for imposing such a condition and would have treated the statutory violation as a material contract breach instead.

The majority tethered its decision to the statute’s purpose: to maintain the flow of project funds and keep construction projects moving forward. Perhaps this decision will help achieve that purpose by creating consequences for prompt pay act violations, but many questions remain. If a violating party pays the amount due, thereby mooting the payment claims, would any defenses be left to assert? If not, what will the process look like? Most construction contracts allow offsets for defective work in subsequent months, so could a payment made one month for a statutory violation be offset the following month? Although the majority’s decision added teeth to the prompt pay act, the answers to these questions will determine their strength.

For questions, contact your Bernkopf attorney or the author of this client alert, Bob Stetson. Bob can be reached by email at rstetson@bernkopflegal.com or by phone at 617.790.3423.

ABOUT THE AUTHOR

Robert W. Stetson

Partner

A partner specializing in complex civil litigation and alternative dispute resolution, Bob represents various clients ranging from individuals to multi-national corporations in all phases of litigation, including trial and appellate practice. Bob is also the host of the Legal Judg(e)ments podcast.