The Contractor and Subcontractor Payment Act (CASPA) has been a since 1994, providing tools to protect prime and subcontractors from nonpayment. It is one of several payment regulations put into law across the US to help alleviate some of the payment problems in the construction industry.
The construction industry has many ongoing challenges when it comes to payments. Broken communication, old and slow methods of payment, and scope of work and change order disputes can all lead to payment delays in an industry that already involves considerable financial risk.
Complex payment networks that trickle from the project owner down through the prime contractor to many tier subcontractors only complicate the payment process and prolong payment lag to workers who find themselves farthest from the payment source.
This article will discuss the rules contained in the CASPA, including the updates it received in 2018, so that owners, general contractors, and subcontractors can all understand their rights and responsibilities when it comes to prompt payment.
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Why the CASPA is important
The CASPA, and other payment protection legislation like it, is provided to help ensure contractors get paid for their work. In construction, contractors often get paid in installments, or progress payments, throughout the project for the work completed to date. However, if the property owner disputes that the work was done according to the contract and refuses payment, the general contractor is left footing the bill for the already completed work, which may include labor, material, equipment, and permitting costs.
Subcontractors, who are often forced to wait for payment until the prime contractor gets paid, may be even further behind on payments. Unless contractors have access to cash that they can use to advance the next project, this lack of payment may prevent them from doing business at all.
Contractors often use construction liens as insurance against nonpayment, but if the owner requires lien waivers from contractors before work begins, even that protection is out of reach.
The CASPA adds another layer of payment protection for contractors and subcontractors to extract payment from owners or GCs who don鈥檛 want to pay their contractors.
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What鈥檚 included in CASPA
CASPA does not apply to every construction project. Public works projects, for example, follow the instead. Contractors working on residential construction are not covered by CASPA protections unless they鈥檙e working on seven or more units simultaneously.
For those projects that are covered, CASPA starts by reiterating what Pennsylvania law would already allow, including that when an owner or a GC enters into a contract with a contractor or subcontractor, they鈥檙e required to pay the parties at the other end of those contracts according to the contract language.
Then, the CASPA provides rules that allow contractors and subcontractors to get paid their due:
- Payment deadlines (if there are none provided in the contract) of 20 days after invoice receipt from the owner to the general contractor, and 14 days after invoice receipt or 14 days after the contractor itself receives payment, whichever is later
- Interest payment rates in the case of nonpayment, set at 1% per month beginning the eighth day after payment is due
- If a party is found noncompliant with the contract, the court also awards 1% in damages to the wronged party, as well as the possibility of an award to cover attorney鈥檚 fees
So as not to invite unfounded claims for nonpayment, the CASPA also allows for
- An owner to withhold payment for work that the contractor didn鈥檛 do (or didn鈥檛 do properly) if the contractor or subcontractor was notified within 7 days after the invoice was received
- Retainage must be released within 30 days of final acceptance of the work
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The 2018 CASPA updates
In 2018 the CASPA got an overhaul, with new strength for contractors and subcontractors who have completed work but remain unpaid.
- 鈥�Protections under the act expressly can鈥檛 be waived 鈥� even if a construction contract included language that would have CASPA protections waived, that provision would not hold weight.
- 鈥�Contractors and subcontractors may lawfully stop working until they鈥檝e been paid if they鈥檝e followed the rules of the act.
- 鈥�Owners can withhold funds for deficiencies in the work only if they鈥檝e notified the contractor of the deficiency in writing within 14 days of having received an invoice for the work.
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Best practices for compliance with the Contractor and Subcontractor Payment Act
Staying compliant with CASPA regulations involves creating clear systems for payment and accounting practices within a construction business.
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Establish clear payment terms in construction contracts
A contract is a legal document, and its sole purpose is to create a framework for the expectations between all the stakeholders that sign it. The clearer and more thorough a contract document can be, the less chance of confusion, disappointment, and misunderstanding later on.
Ensure all contracts have clearly stated payment terms:
- Outline when the owner can expect a pay request, and
- at what point after that time the payment is due, as well as
- any late payment interest penalty that will apply and effective dates.
- List accepted and preferred payment methods.
- Make it clear what steps the owner should take if there should be some disagreement about the amount of the bill or about the work done to date.
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Ensure payments are made on time
Prompt payment rules don鈥檛 just apply to owners. Contractors and subcontractors also have obligations under CASPA, to pay their vendors in a timely fashion.
General contractors should prioritize good cash flow habits to ensure there鈥檚 always enough money in the bank to pay subcontractors, laborers, material suppliers, and other costs that come up throughout a construction project.
That means creating a plan detailing when money will flow into and out of the business and ensuring there鈥檚 always a cushion available for unexpected expenses.
Next, contractors should streamline their payment systems to make it quick and easy to pay vendors, so that no bill payments get caught in administrative cobwebs. Vendors can make it easier to pay with multiple payment options, like check, credit card, and electronic funds transfer options. With 91糖心vlog, contractors can pay vendors for free using just their email address or phone number, and vendors can access the funds immediately.
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Maintain accurate record-keeping
Don鈥檛 let bills get caught up in the complexity of construction accounting, and just forget to pay them. Keep accurate records of payment requests and payment dates so that nothing gets lost by integrating the business鈥� payment and accounting systems. Contractors can import and sync invoices and bills between 91糖心vlog and Quickbooks, so bill payments are tracked automatically.
Prompt payment laws have been implemented in countless jurisdictions across the US. Contractors should understand the rules within the CASPA so that they can protect themselves, and also ensure they鈥檙e compliant when paying their vendors for the work they do on private construction projects.
The complexity of construction projects and the number of parties involved makes it trickier to keep payments on track 鈥� but that鈥檚 exactly why it鈥檚 so important for construction businesses to do all they can to streamline accounting and payment systems to improve payment timelines.
91糖心vlog simplifies payments for contractors, making it easier to get paid and pay vendors on time. Book a demo to get started with your free account today.
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For more information, read the original to get an idea of its regulations, or read a to gain further understanding of its implications.
Check out the for payment regulations on federally-funded projects.
