the new massachusetts retainage lawc.ymcdn.com/.../asm_retainage_seminar_9_15_1.pdf · the new...

THE NEW MASSACHUSETTS

RETAINAGE LAW

ASSOCIATED SUBCONTRACTORS

OF MASSACHUSETTS

SEPTEMBER 15, 2014

Carolyn M. Francisco, Esq. [email protected]

Corwin & Corwin LLP www.corwinlaw.com

600 Unicorn Park Drive 617-849-6032

Woburn, MA 01801

Copyright © 2014 Corwin & Corwin LLP

Brief History

2010 Prompt Pay Law Passed (M.G.L. c. 149, sec. 29E)

• Periodic Payments

• Change Orders

• Pay-if-Paid Terms

• Right to Suspend

2011 ASM Files Original Retainage Bill

• Simple bill

• At urging of leadership ASM reaches out to opposing parties


Brief History

2013 ASM Again Files Retainage Bill

• July 2013 public hearings

• AGC reaches out to ASM in fall of 2013

• Many months of negotiations

• June 2014 a final consensus bill achieved

• Legislature Passed on 7.31.14

• Governor Signed on 8.8.14

• M.G.L. c. 149, sec. 29F


Purpose of Law

Natural extension/companion of the Prompt Pay Law

Address the last, most difficult payment to collect – RETAINAGE!

Establish a reasonable, not-to-exceed limit on the amount of retainage that may be withheld

Establish an efficient, timely process for closing out a project

Establish a reasonable, not-to-exceed time period in which retainage must be paid

Establish reasonable, not-to-exceed allowed holdbacks from the payment of retainage


Projects Affected

Law goes into effect November 6, 2014

Applies to private projects where prime

contract signed after November 6, 2014

and has an original value of $3 million or

more

Does not apply to residential projects of 1-

4 units

Same as Prompt Pay Law


Contracts Affected

Applies to all contracts eligible for

mechanic lien rights under M.G.L. c. 254

◦ All written prime contracts

◦ All written subcontracts (every tier)

◦ Suppliers with written contracts with prime

contractor or any-tier subcontractor

◦ Same as Prompt Pay Law


Limit on Retainage That May

Be Withheld

No more than 5% of a

progress payment

◦May be less

◦May not be more


Project Closeout Process:

Substantial Completion Defined

Statutory obligations of Owners and

Prime Contractors once Substantial

Completion achieved


Project Closeout Process:

Substantial Completion Defined

Substantial Completion: “the stage in the progress of the project when the work required by the contract for construction with the project owner is sufficiently complete in accordance with the contract for construction so that the project owner may occupy or utilize the work for its intended use…”

Substantial Completion may apply to the entire project or a phase of the entire project if the prime contract expressly permits substantial completion to apply to defined phases of the project.


Project Closeout Process: Getting

to Date of Substantial Completion

i.) Not later than 14 days after reaching Substantial Completion Prime Contractor must submit to Owner a Notice of Substantial Completion (statutory form) setting forth date of Substantial Completion, according to the Prime Contractor, and certified as made in good faith


Project Closeout Process: Getting to

Date of Substantial Completion

ii.) Within 14 days of receipt Owner shall accept or reject Notice of Substantial Completion

◦ If Owner accepts parties proceed to punch list

Acceptance = signing Notice and delivering to Prime Contractor

◦ If Owner rejects must send written notice to Prime Contractor of rejection, with factual and contractual basis for rejection and certification that rejection made in good faith


Project Closeout Process: Getting

to Date of Substantial Completion

Rejection of Notice subject to dispute

resolution procedures in contract, which

Prime Contractor must commence within

7 days of receipt of rejection

Owner and Prime Contractor shall

prosecute dispute resolution procedures

diligently, expeditiously and in good faith


Project Closeout Process: Getting to

Date of Substantial Completion

If Owner neither accept nor rejects Notice within time and manner required in statute, Notice is deemed accepted and parties proceed to punch list

Upon express or deemed acceptance, date of Substantial Completion shall be the date stated in the Prime Contractor’s Notice for all purposes

Owner’s express or deemed acceptance of Notice binding on Owner and its successors and assigns


Project Close Out Process:

Punch List Owner must submit punch list to Prime

Contractor no later than 14 days after

acceptance (express or deemed) of Notice

of Substantial Completion, or after

resolution of dispute

◦ Punch list must include all “incomplete or

defective work items ” and “deliverables”

◦ Punch list must be certified as made in good

faith



Punch List Prime Contractor must submit punch list to

all persons from whom Prime is withholding

retainage (e.g., Subcontractors) no later than

21 days after acceptance (express or deemed)

of Notice of Substantial Completion, or after

resolution of dispute

◦ Punch list must include all “incomplete or

defective work items ” and “deliverables”

◦ Punch list must be certified as made in good faith

◦ Punch list may include items not on Owner’s list



Punch List Incomplete or Defective Work: “labor,

materials or any other item required for

full performance by a person seeking

payment of retainage which remains to be

furnished by the person under the person’s

contract for construction, or which has

been furnished by such person but

requires correction, repair, further

completion, revision or replacement.”



Punch List

“Incomplete or Defective Work” is NOT:

◦ “Deliverable”

◦ Labor, materials or other items to be repaired

or replaced after substantial or final

completion or per warranty, guaranty or other

contractual requirement to correct after

substantial or final completion



Punch List

Deliverable: “close-out document required

to be submitted by the person seeking

payment of retainage under the person’s

contract for construction”



Punch List

• Deliverable is NOT:

◦ A document affirming, certifying or

confirming completion or correction of labor,

materials, etc..

• Lien waivers and releases which are

deliverables must comply with mechanic’s lien

law



Good Faith & Timely

Owner and Prime Contractor must

fulfill statutory close out obligations

in good faith and in a timely manner


Payment of Retainage:

When and How to Invoice

Requisition for retainage may be submitted 60 days after Substantial Completion (or resolution of dispute) ◦ Can be earlier if contract allows

◦ Must be in form required by contract

◦ Must include a list of Incomplete or Defective Work items completed and Deliverables submitted, and list must be certified as made in good faith

◦ Contract may establish date of the month to submit retainage requisition Submit too early deemed submitted on date due



Deadline to Pay Owner must pay Prime Contractor’s

retainage requisition no later than 30 days after submission

Add 7 days for each tier below the Owner

◦ Prime Contractor must pay Subcontractor’s retainage requisition no later than 37 days after submission

◦ Subcontractor shall pay Sub-subcontractor’s retainage requisition no later than 44 days after submission



Allowed Holdbacks

Not more than the following amounts may

be withheld from payment of retainage:

i.) Deliverables:

value as mutually agreed in writing by the parties to

the contract of the person seeking payment of

retainage; OR

if no value is agreed in writing, the reasonable value

not to exceed 2.5% of the total adjusted contract

price of the person seeking payment of retainage



Allowed Holdbacks

ii.) 150% of the reasonable cost to

complete or correct Incomplete or

Defective Work items



Allowed Holdbacks iii.) reasonable value of any “Claims” (and

costs and attorney’s fees incurred as a result

of the claims if allowed in the contract of the

person seeking payment of retainage)

◦ Claim: “an allegation that a person seeking

payment of retainage breached the person’s

contract for construction”

allegation that the person seeking payment breached his

contract

Claim subject to applicable dispute resolution provisions,

notice and other requirements in contract



Allowed Holdbacks Condition of Holdbacks:

◦ No amount may be withheld from payment of retainage unless person seeking payment has received, before the date payment is due, a writing:

describing Incomplete or Defective Work items and value attributable to each item;

describing Deliverables, and value attributable to each deliverable

describing the factual and contractual basis and value attributable for each Claim

certified as made in good faith



Incremental Release May submit additional retainage

requisitions as Incomplete or Defective Work items are completed and corrected, Deliverables are submitted and Claims are resolved

No contract may restrict submission of retainage requisitions to less frequently than 1 per calendar month

Same requirements for submission and payment of subsequent requisitions



Disputes

A rejection of a retainage requisition or

disputes regarding Incomplete or Defective

Work items, Deliverables or Claims subject

to applicable dispute resolution provisions

Contract provision requiring a party to delay

dispute resolution until later than 30 days

after either rejection of retainage requisition

or written notice of dispute, whichever first

occurs, is void and unenforceable



No Pay if Paid Except…

Payment of retainage is subject to

Prompt Pay Law restrictions on pay if

paid contract terms (M.G.L. c. 149,

sec. 29E(e)




MGL c. 149, sec. 29E(e):

◦ Contract provisions conditioning obligation to pay on receipt of payment from third party void and unenforceable except in two circumstances:

Non-performance

Insolvency

For non-performance and insolvency exceptions to apply they must be expressly stated in contract




Non-performance Exception

◦ Pay-if-paid enforceable if non-payment from

third party is due to non-performance of the

person seeking payment; and

◦ Person seeking payment failed to cure the

non-performance after receipt of written

notice within the time required in contract to

cure, or if contract has no cure period, within

14 days after receipt of written notice



No Pay if Paid Except… Insolvency Exception

◦ Pay-if-paid enforceable if third party is insolvent or becomes insolvent within 90 days after submission of pay application; and

◦ Party seeking to enforce pay-if-paid:

filed Notice of Contract before submission of first application for payment for on-site work Notice of Identification filed by lower tier subcontractors

filed Statement of Account within time required by M.G.L. c. 254

filed suit to enforce lien within time required by M.G.L. c. 254

pursued all reasonable legal remedies to obtain payment from third party until there is a reasonable likelihood the action will not result in obtaining payment



Miscellaneous Prime Contractor’s retainage for self-

performed work eligible for payment to same extent as Subcontractor’s retainage

Provided Owner has not declared Prime Contractor in default, Owner may not withhold the retainage of a Subcontractor (or the Prime Contractor’s proportional retainage calculated thereon) for a claim that the Owner asserts against the Prime Contractor that is not based on the performance or default of the Subcontractor.


ELECTRONIC

COMMUNICATIONS

& NO WAIVER

Communications required under the law

to be in writing may be submitted in

electronic form and by electronic means

Any contract provision which purports to

waive, limit or subvert the law, or redefine

or expand the conditions for achievement

of substantial completion for payment of

retainage is void and unenforceable


Considerations

Revise applicable contracts to

comply with Prompt Pay and

Retainage Laws

◦Change terms of applicable

contracts or attach Rider


Considerations

Rider:

“The terms of M.G.L. c. 149, secs. 29E and sec. 29F shall supersede any contrary or conflicting terms in the attached Contract [Subcontract; Sub-subcontract; Purchase Order].”

“The parties intend that the attached Contract [Subcontract; Sub-subcontract; Purchase Order] comply with M.G.L. c. 149, secs. 29E and 29F. Any term in the attached Contract [Subcontract; Sub-subcontract; Purchase Order] which is contrary or conflicting to M.G.L. c.149, secs. 29E or F shall be deemed re-written to the extent required to conform to M.G.L. c. 149, secs. 29E. and 29F.”


Considerations

Can negotiate for less than 5% retainage

Can negotiate for submission of retainage

requisition and payment of retainage

sooner than not-to-exceed timing in

statute

Can negotiate lesser amounts for

holdbacks in three categories


Considerations

Clearly define Deliverable requirements

in contract

Try to agree up-front, in writing,

reasonable amounts to be withheld for

each Deliverable


Considerations

Carefully review Riders presented to

determine compliance with law

Pay attention to when Substantial

Completion is achieved

Inquire with Prime Contractor about status

of submission and acceptance of Notice of

Substantial Completion

Know your rights and obligations


Conclusion

Purpose of law to set a reasonable, not to exceed, limit on the amount of retainage that may be withheld; establish an organized and timely method of closing out a project; and provide a reasonable, not to exceed, time period in which retainage must paid

Prompt flow of funds and timely close out benefits all

Statute should make routine good practices and procedures


Thank you!

The foregoing is intended as a general guide relating to the new Massachusetts Retainage Law. It is not legal advice and should not be considered or relied upon as a substitution for consultation with an attorney. The legal and factual issues involved in any matter vary significantly from project to project, contract to contract, jurisdiction to jurisdiction and time to time. An attorney should be consulted with respect to the contract, facts and law applicable to any specific construction law issue.


the new massachusetts retainage lawc.ymcdn.com/.../asm_retainage_seminar_9_15_1.pdf · the new...

Documents