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Pay or waive: Massachusetts SJC requires payment under Prompt Pay Act for non-compliant contractor to assert common-law defenses

7/12/24

MA

By: Catherine A. Bednar and Andrew M. Vandini

On June 17, 2024, in Bus. Interiors Floor Covering Bus. Tr. v. Graycor Constr. Co.,1 the Massachusetts Supreme Judicial Court answered an issue left undecided by Tocci Building Corp. v. IRIV Partners, LLC2: whether a party who violates the Prompt Pay Act (PPA)3 by failing to timely advise a general contractor of its decision to withhold payments (coupled with the failure to certify that such funds are being withheld in good faith) forfeits its substantive defenses to non-payment, such as fraud, defective work, or breach of contract.  

In November 2018, Graycor Construction Company (Graycor)—a general contractor for a movie theater project—entered into a subcontract with Business Interiors Floor Covering Business Trust (Business Interiors). Over the course of the project, Graycor failed to approve or reject three separate applications for periodic payments made by Business Interiors for the flooring work it performed on the project. Accordingly, Business Interiors sued Graycor for breach of contract. Graycor, on appeal, argued impossibility as a defense, and Business Interiors in turn argued that Graycor waived its right to the common law defense of impossibility because of its failure to comply with the PPA.

The Court held that a “contractor that does not approve or reject an application for payment in compliance with the time periods and other requirements of the [PPA] must pay the amount due prior to, or contemporaneous with, the invocation of any common-law defenses in any subsequent proceeding regarding enforcement of the invoices.” Thus, Graycor—having failed to pay the approved invoices submitted by Business Interiors either prior to or contemporaneous with its asserted defense—waived its impossibility defense.  

So, what does this mean for parties to a construction contract? Practically speaking, it should compel contractors to comply with the PPA and keep project funds flowing, lest they potentially relinquish their right to various common-law defenses should a dispute arise. Moreover, while the decision certainly favors subcontractors dealing with recalcitrant contractors, it also serves as a reminder to all contractors that they should carefully heed the requirements of the PPA when disputing requisitions.

For more information, please contact Catherine A. Bednar at cbednar@fmglaw.com, Andrew M. Vandini at andrew.vandini@fmglaw.com, or your local FMG attorney.

  1. 494 Mass. 216 (2024). ↩︎
  2. No. SUCV201900405, 2020 WL 8182898, at *6—8 (Mass. Super. Ct. Nov. 20, 2020).  ↩︎
  3. The Prompt Pay Act, codified at M.G.L. c. 149, § 29E, requires, in pertinent part, a recipient of a payment requisition to object to such requisition within sixty days, and any rejection must: (1) be in writing; (2) include an explanation of the factual and contractual basis for the rejection; and (3) be certified to have been made in good faith. See Tocci, 2020 WL 8182898, at *2. Thus, requisitions not objected to are deemed approved and must be paid. ↩︎

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