Changes to CASPA attempt to Close Loop-holes for Payment Terms Between Owners and Contractors and Subcontractors

On October 10, 2018 new amendments will take effect making significant changes to the Contractor and Subcontractor Payment Act (“CASPA”).  CASPA is the law which was intended to cure abuses within the building industry involving payments due from owners to contractors, contractors to subcontractors, and subcontractors to other sub-subcontractors.  When originally passed in 1994, CASPA did provide some wiggle room as to whether its payment obligations could be avoided.

The changes to CASPA include:

  • Waiver.  Contract provision attempting to waive rights under CASPA are unenforceable unless waiver of the right is expressly allowed by CASPA;
  • Suspension of Work. For contracts which do not contain language permitting suspension of work for nonpayment, contractors and subcontractors now have a statutory right to suspend work for nonpayment if:
    • Payment has not been made within the period of time required by the contract or the statutory period set by CASPA, whichever is applicable;
    • After 30 calendar days have passed since payment was due, written notice of the nonpayment is sent via email or postal service to the person who owes the payment; and,
    • After 30 calendar days since the written notice of nonpayment was sent, written notice is sent via certified mail of the intent to suspend performance in 10 calendar days if payment is not made.
  • Deficiency Items. Good faith withholding of payment now expressly requires written explanation of the reason for the withholding within 14 calendar days of receipt of an invoice.  The act further states that the failure to provide a written explanation within 14 days will constitute a waiver of the right to withhold and require payment of the invoiced amount in full;
  • Retention.  Similarly, written notice of deficiencies requirements must also be provided if retainage is to be withheld beyond 30 calendar days of final acceptance of the work. If not, the right to withhold retainage is waived.
  • Billing Errors.  Delay of payment due to an error in an invoice is now expressly prohibited.  CASPA has always required written notice of invoice errors to be sent within 10 working days of receipt of an invoice.  The Act now makes it clear that, once the notice of the error is received by person who sent the mistaken invoice, payment of the correct invoice amount must be made within the normal payment period regardless of whether (or when) the invoice is corrected.
  • Release of Retention.  Contractors and subcontractors now have the express right to payment of retainage upon substantial completion if they post a maintenance bond for 120% of the retainage amount.

Given these significant changes, you should review your contracts to determine if they are in compliance with the new CASPA.  Most importantly however, Owners, Contractors and Subcontractors, must educate their project managers and other staff as to these changes which now specifically dictate how to administer the payment process. Without proper management of payment terms, contract language will not protect you.