Massachusetts contractors and their lawyers are once again testing the limits of the state’s 15-year-old prompt payment law, with concerned prime contractors asking an appeals court to overturn a lower court decision they believe gives subcontractors a powerful advantage in payment disputes.
After a Feb. 2 hearing, state Supreme Judicial Court justices must decide a complex matter: whether an arbitrator exceeded his authority by allowing a general contractor to hold back payments to a subcontractor, ordered by an arbitrator, after the general contractor initially missed deadlines required by the state’s prompt payment law to justify withholding payments.
From the perspective of an owner or general contractor, the ruling would mean that once a general contractor denies requested payments without explaining why, then makes the payments but then wins a judgment that reduces the amount owed, the owner or general contractor can’t get any money back.
There is a second issue before the appeals court: Did a state court judge who had ruled that the arbitrator exceeded his authority and left the arbitrator’s decision undermining arbitration in Massachusetts?
“The outcome could profoundly influence payment practices on private projects exceeding $3 million” that are covered by state law, attorneys at Cole Law Partners wrote. Represents Waltham, Mass.-based JC Cannistraro, a plumbing and mechanical contractor, in its dispute with Boston-based Columbia Construction Co.
Columbia’s attorney, arguing before the Supreme Judicial Court bench, saw the overturning of the arbitrator’s second decision allowing Columbia to recoup some of what it had paid Cannistraro as the crux of the matter. The appeals panel should reverse the lower court because “the most important thing before the court here in our view is to make sure we’re protecting the sanctity of arbitration,” argued Jeff D. Bernarducci of the law firm Hinckley Allen.
The two contractors had worked together as principal and subcontractor at Siemens Healthineers’ advanced manufacturing and research and development facilities in East Walpole, Massachusetts.
That $310 million project renovated five buildings, made additions to two others and built a new structure. The work created new offices, warehouses, laboratories, manufacturing areas, clean rooms and cold rooms.
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Associated General Contractors of Massachusetts, Associated Subcontractors of Massachusetts and the Real Estate Lawyers Association have filed amicus briefs in the appeals case.
Since its adoption by state lawmakers in 2010, the Massachusetts prompt payment law has established protocols for payment requests. But the details are still being worked out.
The Supreme Court clarified some aspects of the law in 2024, when tthe judges ruled that a prime contractor must explain why it is withholding payments from subcontractors or lose the right to dispute them.
The current case is different. According to a blog post from the law firm Anderson Kreiger, Cannistraro proposed two change orders totaling $1 million to Columbia Construction, which denied the payments.
Cannistraro then filed suit in state court against the general contractor, and after Columbia responded to the suit, a trial court judge ordered arbitration.
The arbitrator ruled that Columbia had failed to certify that it refused payment in good faith, as required by the state’s prompt payment law, and ordered Columbia to pay the full amount of Cannistraro’s invoices. The general contractor made the payments.
Arbitrator: Return $600,000
Some 18 months later, after hearing evidence on the merits of the various project charges and costs related to the change order, the same arbitrator ruled that Cannistraro had inflated his costs by $600,000 and ordered the subordinate to return that amount to Columbia.
Cannistraro appealed the arbitrator’s ruling to Superior Court, arguing that the arbitrator improperly exceeded his authority under state law by ordering the return of the money. The subcontractor asserted that Columbia forfeited its rights to challenge payment of the full value because Columbia had asserted defenses in the original lawsuit and arbitration before making full payment.
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The state Superior Court agreed with Cannistraro that it was too late for Columbia to get the money back.
Attorneys for Anderson Kreiger, who are not involved in the case, summarized the court’s reasoning. Columbia, “by asserting its defenses when the suit was filed, and not actually paying the “deemed approved” bill amounts until two years later,” under state law effectively waived challenges to recover any of its payments.
If that ruling is upheld, Anderson Kreiger attorneys wrote, the state’s prompt payment law “has become a blunt instrument against owners and upstream contractors who do not strictly follow the payment procedures of” the law.
Arguing for Cannistraro, Cole Law partner Nathan Cole stressed that Columbia’s “delays,” which resulted in a two-year wait for more than $950,000 in payments, violated the intent of the state’s prompt payment law.
“This sequence is far from ‘quick pay,'” Cole wrote, “and we believe the trial court ruled correctly.”
