A Blue Bell law firm said it secured a victory for the
construction industry with the Pennsylvania Supreme Court's decision this month
declaring that the Contractor and Subcontractor Payment Act does not apply to
projects owned by a government entity.
The case, Clipper Pipe & Service Inc. of Eddystone
vs. the Ohio Casualty Insurance Co. of Fairfield, Ohio, and Contracting Systems
Inc. II of Quakertown, involved a project in which Clipper Pipe brought claims
against Ohio Casualty and CSI, seeking payments under CASPA.
Both CASPA and the Prompt Pay Act are state laws that
allow for the demand of penalties, interest and attorney’s fees against an
owner or contractor if that owner or contractor fails to make timely payments
to lower-tier contractors. The main difference between the two is that the
penalties, interest and attorney’s fees that can be awarded under CASPA are
much harsher than those that can be awarded under the Prompt Pay Act, according
to Flamm Walton PC, a law firm that also has offices in South Whitehall
Township and Marlton, N.J.
The work involved a public construction project for the
Navy/Marine Corps Reserve Training Center in the Lehigh Valley on Postal Road
in Hanover Township, Lehigh County. The U.S. Department of the Navy entered
into an agreement with CSI which served as the general contractor for the
construction of an addition and renovations to the training center in 2010,
according to the court ruling. CSI subcontracted with Clipper Pipe for the
mechanical and heating, ventilation and air conditioning work.
In the claim, Clipper Pipe was looking to obtain a larger
award of interest, penalties and attorney’s fees than what the laws were
designed to allow, according to the law firm.
Clipper Pipe filed suit against CSI and Ohio Casualty in
the U.S. District Court for the Eastern District of Pennsylvania alleging that
CSI failed to pay about $150,000 to Clipper Pipe, according to the terms of its
agreement with CSI.
Flamm Walton argued to the Pennsylvania Supreme Court
that CASPA does not apply to construction projects where the owner is a
government entity, and the state court agreed.
As a result of this case, CASPA now only applies to
privately funded construction projects where the owner is a private entity, as
the court concluded that the Prompt Pay Act addresses public projects.
Robert Krandel, a shareholder with Flamm Watson, worked
on the case and said the outcome would have a significant impact on the
construction industry.
“They now have some certainty when they are doing public
construction projects; they know which one applies,” Krandel said. “Lawyers
were trying to use the more substantial penalties on public projects. It was
driving up the costs for the construction companies. This kind of thing was a
cost that would have to be put into public construction projects.”
Krandel said he also worked on a case last year in Lehigh
County Court in which one of the suppliers of sheet metal for a public school
project in Slatington was trying to use the CASPA law to obtain higher interest
and penalties.
When CASPA was created, it was never intended for public
construction projects but somewhere down the line, there were a couple of bad
decisions by federal trial level courts, said Mary Tebeau, president and CEO of
Associated Builders & Contractors Inc. Eastern Pennsylvania Chapter.
“That was the original intent; somewhere it got
convoluted along the way,” Tebeau said.
When the decisions on CASPA kept getting appealed, the
federal judicial system asked the Pennsylvania Supreme Court to take
jurisdiction, she said.
“For those who do not have issues with payment, this is
just a clarification as to which law applies to which type of project, which
should give peace of mind to owners and contractors alike going forward,”
Tebeau said. “Those in the construction industry think this is a good
clarification and positive outcome.”
While Clipper Pipe lost the case, an executive from the
company described the court ruling a little bit shallow as far as its
interpretation of what CASPA meant.
“I think the court was sympathetic to our case because of
the situation that our contractor and insurance company put us in,” said Bill
Jimick, president of Clipper Pipe. “It [CASPA] didn’t say that it excluded the
federal government, but it also didn’t put them in.”
Jimick compared the outcome of the CASPA court ruling to
the recent U.S. Supreme Court ruling on the Affordable Health Care Act in which
the states are now required to have an exchange.
“I don’t think the intent of that law was to exclude the
government,” Jimick said.
The intent of the CASPA law is to protect subcontractors
from unscrupulous general contractors, Jimick said.
Source: LVB
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