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By: David A. Slocum
A recent decision by the Massachusetts Appeals Court in Tocci Building Corp. v. IRIV Partners, LLC, 101 Mass. App. Ct. 133 (2022) has established precedent that the formal rejection requirements of the Massachusetts Prompt Pay Act, M.G.L. c. 149 § 29E must be strictly complied with or else a written application for periodic progress payment submitted pursuant to the Act will be deemed approved by operation of law.
Enacted in 2010, the Massachusetts Prompt Pay Act establishes a procedure for contractors, subcontractors, and suppliers entitled to file a mechanic’s lien on most private construction projects with a base contract value of three million dollars ($3,000,000) or more to submit formal applications for periodic payment, which must be approved or rejected in accordance with specific timelines and requirements set forth in the Act. The language of the Prompt Pay Act requires that in addition to being issued within a specified time period, a formal rejection of an application for periodic payment must: (i) be in writing; (ii) include an explanation of the factual and contractual basis for rejection of the applications; and (iii) be certified to have been made in good faith. Under the Prompt Pay Act, if such a rejection of an application for periodic payment is not timely issued in accordance with the Act, the application is deemed approved. The Act provides that the above requirements may not be waived or limited by contract.
Until the recent decision in Tocci Building Corp. v. IRIV Partners, LLC, there was no appellate case law in Massachusetts construing the requirements of the Prompt Pay Act. In Tocci, a Contractor submitted a series of applications for period progress payment to the project Owner, which were in whole or in part, not paid. In response to those applications, the Owner and/or its legal counsel sent written correspondence to the Contractor disputing the quality and completeness of the Contractor’s work. Among other things, the Owner sent a certified letter to the Contractor within the time period required by the Prompt Pay Act, asserting that the Contractor was in default and stating that if such default was not promptly cured, the Owner would pursue its legal rights under the parties’ contract, including withholding payment.
In a precedent-setting decision, the Massachusetts Appeals Court held that because that and other written correspondence issued by the Owner did not strictly conform with the requirements of the Prompt Pay Act, the Contractor was entitled to summary judgment on its claims that the Owner had failed to make payment owed to it under the Act. The Court held that the specific requirements for a valid rejection under the Act were not merely ministerial, and that the Court had no authority to deem the Owner’s correspondence as substantial compliance with the requirements of the Act.
Significantly, the Court also made clear that the lack of a timely rejection in strict compliance with the Prompt Pay Act does not necessarily preclude an owner (or general contractor) from raising breach of contract and/or other claims against a contractor and seeking to recoup payments made under the Act. However, the Court emphasized that under the Act, a contractor’s alleged breach or default does not permit an owner (or general contractor) to withhold payments in response to an application for a periodic payment absent a timely formal written rejection issued in strict compliance with the Prompt Pay Act.
Property owners, contractors, subcontractors, and suppliers should take care to familiarize themselves and to comply with the requirements of the Massachusetts Prompt Pay Act. Project participants subject to the Prompt Pay Act should consider engaging knowledgeable legal counsel to guide them through applicable legal requirements.