Oct 07, 2020

Pennsylvania’s Contractor and Subcontractor Payment Act Does Not Permit a Party to Make the Construction Contract Subject to the Laws of Another State

The construction industry in Pennsylvania has proven itself to be resilient over these past 7 months. Soon after the initial local and statewide quarantine orders, important clarifications were issued which confirmed many essential construction projects could proceed. Not long thereafter, guidelines were developed to permit most projects to continue, and to allow new building to begin. Industry-wide, unemployment continues a downward trend, and construction remains a relatively promising sector of the economy.

As projects press ahead, so do their contracts. Successful contractors, subcontractors and suppliers know the importance of careful consideration and review of contract language prior to signing. While it is important to understand and negotiate agreements in any economy, current ongoing demand for construction, services might allow for closer scrutiny of terms and conditions to assure a fair and level playing field for both parties to a deal.

The issue which we continue to see with regularity is the use of onerous choice of law and dispute forum selection clauses by out-of-state parties which attempt to force contractors, subs and suppliers to travel outside of Pennsylvania to litigate any disputes under their contracts, or to impose another state’s laws on a project which is located here in PA. In the press to get a new job lined-up and on the books, these provisions of a contract can be easily overlooked; but rightly or wrongly, when problems arise the out-of-state entity is often quick to throw a different state’s construction law up as a roadblock to resolution. Worse, more than occasionally, a common response to a dispute might be “well, if you don’t like it, you have to sue us in [fill-in the inconvenient out-of-state locale].”

Anyone contracting for non-public work here in Pennsylvania with an entity from another state should always remember that the PA Contractor and Subcontractor Payment Act (CASPA) puts a lid on such tactics. Section 14 of the law states that making a construction contract subject to the laws of another state, or requiring that any litigation, arbitration or other dispute resolution occur outside of the Commonwealth, shall be unenforceable. See 73 P.S. § 514. If you are already under contract for a project which applies another state’s laws or venue for disputes, know that such clauses may not be enforced against you. Instead, CASPA tells us that PA law applies, and that any disputes must be resolved in PA. Of course, if such a provision comes across your desk, address it head-on before signing to avoid unnecessary confusion down the road.

In fact, remember that since 2018, CASPA makes it clear that unless specifically authorized elsewhere under the statute, parties to a construction contract may not waive any of CASPA’s protections or provisions. Most of the important rules and obligations outlined by Pennsylvania’s prompt payment law governing private construction may not be written-away by oppressive and counterproductive contract language. Like a good mechanic who takes care of her own vehicles, a good contractor must pay close attention to her contract rights.

E-Verify Effective in Pennsylvania October 7, 2020

Pennsylvania Act 75 was passed in 2019 to require all construction industry employers to verify the Social Security numbers of employees, and prevent the employment of unauthorized persons. “E-Verify” is the federal government’s online system to electronically verify an individual’s authorization to work in the U.S. Employers who violate the statute will be required to terminate unauthorized employees and will be placed on a 3-year probationary period, along with other possible sanctions. Employers must retain records that status was verified for 3 years, and anyone who subcontracts work is responsible to assure that those working below also utilize the E-Verify system. A contractor will be immune for its subcontractor’s violation of Act 75 where its subcontracts’ terms state that the sub will be terminated in the event the subcontractor is found to be in violation of the law, and if the subcontract includes verification that the sub is aware of the provisions of the act and will be responsible for compliance.

If you, or someone you know, may be affected by the information in this legal alert, please contact Bob Watson at Eastburn and Gray. To learn more about Eastburn and Gray and our Construction Law practice group, please visit the firm’s website, www.eastburngray.com.

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