The Massachusetts Legislature passed the state’s Quick Payment Act 14 years ago to improve the flow of money downstream on most large-scale private construction projects. Although the act established detailed protocols for administering payment requests and other important construction phase processes, several questions about its interpretation and impact remained unanswered.
Over the years, I have seen a significant portion of the Massachusetts design and construction community ignore the law’s demanding requirements or be unaware of its applicability. The first indication of how the act would be interpreted came in 2022, when the state appeals court ruled Tocci Building Corp. v. IRIV Partners LLC. In this case, the court interpreted the act strictly. It held that an owner (and its agent) who failed to promptly inform the project’s general contractor of the specific factual and legal reasons why it was withholding payment, along with failing to certify that the funds were being withheld in good faith faith, they violated the law: making the contractor liable for unpaid funds.
But Tocci left unanswered the question of whether a payer who innocently defaults on the act also loses his right to later argue that the payee is not entitled to the funds he’s requesting because, among other reasons, he performed defective work. These questions are also important for design professionals who, while performing construction-phase services for an owner, may not strictly adhere to the requirements of the law.
Massachusetts’ highest court, the Supreme Judicial Court, answered that question last June in Business Interiors Floor Covering Business Trust v. Graycor Construction Co. Inc., et al.
In this case, the project’s general contractor Graycor entered into a subcontract with Business Interiors Floor Covering Business Trust to perform certain flooring work for a movie theater project in Boston. During construction, Graycor did not formally approve, reject, or certify that its withholding of payment on three payment requests from Business Interiors was made in good faith. Business Interiors sued Graycor in Massachusetts Superior Court, alleging breach of contract, among other theories, and seeking summary judgment. He argued that Graycor failed to comply with the deed and was therefore liable for the unpaid invoices. The court agreed and entered a separate and final judgment against Graycor for the amount owed.
Graycor appealed to the state’s highest appellate court, arguing that it had valid defenses supporting its failure to pay its subcontractor. Justice Scott L. Kafker, writing for the court’s majority, disagreed, holding that under the act, “a party who neither approves nor rejects a request for payment within the required period must first make the payment in order to enforce any future proceeding.” The court reasoned that a general contractor who defaults on the act or fails to make payment “before or contemporaneously” with his claim. of any defense to payment in a subsequent proceeding, waives its right to subsequently argue that the subcontractor is not entitled to payment.
“To the extent that the [contractor] has any viable or common contract[-]statutory defenses to payment, those defenses are still available for presentation in a later forum,” the court said. But the contractor must first pay the funds allegedly owed.
The Internal Affairs decision effectively sharpens the teeth of the act by establishing a “do or die” deadline for payers and their consultants in the construction phase. You either comply with the act by promptly reporting and certifying the reasons for the withholding of money, or, if you fail to do so, pay the amounts allegedly owed before you can raise any defense in a subsequent adjudication.
Although the Business Interiors dispute involved a general contractor-subcontractor relationship, the decision is nonetheless a cautionary tale for construction professionals who are responsible for reviewing a general contractor’s payment requests in name of the project owner.
Therefore, failure to comply with the act could put a professional who reviews and approves payment on behalf of an owner on the hook for money that owner will have to pay in exchange for the right to assert its defenses. This is a significant risk that was never as clear as before.
Joseph A. Barra, Esq., a partner at Robinson & Cole LLP and an adjunct professor of construction law at Wentworth Institute of Technology, prepared an amicus brief on the case for Associated Subcontractors of Massachusetts. He can be contacted at jbarra@rc.com.
