Back in 2016, when I moved back to central PA, I was welcomed with open arms by the KCA Board – awesome people, so thankful these amazing and friendly people are in my life and my family’s life. Outside of the KCA Board, I was fortunate to meet such great industry people like Michael Metz-Topodas. Michael’s an awesome dude and I’m glad to call him my friend. It’s crazy to think us two PA people could have met in 1990s when I was living in Norfolk, Va and he was living across the Bay-Bridge tunnel in Hampton Roads, VA. Regardless of when we met, I’m glad it happened.
Michael is a wealth of construction contract knowledge. Give this podcast a read below with this transcript or click to hear him educate Chris Martin and me:https://www.iheart.com/podcast/269-building-pa-podcast-61501833/episode/business-of-construction-caspa-law-61532373/
Chris Martin (00:00):
Hello and welcome to the latest edition of Building Pennsylvania Podcast. I’m Chris Martin with Atlas Marketing
And I’m Jon O’Brien from the Keystone Contractors Association.
And today we are going to be talking with Michael Metz-Topodas of Cohen Seglias, and we are going to be talking primarily and asking Michael’s input on CASPA law and how that affects contractors throughout the Commonwealth. Michael, thanks for being here. Yeah. Welcome Michael.
Michael Metz-Topodas (00:40):
Yeah, it was great to be here. Appreciate it guys.
Chris Martin (00:43):
Thank you. I know we have a lot of questions, so let’s dive in here. And Jon, I know you wanted to lead with the first one, so let’s go from there.
Yeah. Michael, how about we start real basic. And how about just kind of explaining what is CASPA? The Construction & Subcontractor Payment Act.
Michael Metz-Topodas (01:05):
Exactly. Jon said it best the Contractor & Subcontractor Payment Act. Generally speaking is a statute in Pennsylvania. It applies to private projects and it outlines a certain requirements regarding payment to both contractors and subcontractors. In particular, it allows for either contractors or subcontractors to obtain additional relief beyond what they might be able to get in the contract or under Pennsylvania contract law, additional relief where those contractors or subcontractors have not been paid under the terms and conditions of their contracts in particular. It allows for an additional 1% interest penalty per month or sorry, 1% yearly interest that’s calculated per month on any unpaid balance and as well, one of the most aggressive features of it is it allows for a contractor or subcontractor who has not been paid to recover its legal fees for any litigation or other legal action that needs to take to get itself paid. That’s generally what the statute does. There are a lot of details that it provides for us to how you go about that. But in essence, it was created to protect contractors and subcontractors to give a little extra ammunition for them to make sure that they’re paid for work performed on a project. And that should be work that is undisputed with respect to the amount of what is paid.
Jon O’Brien (02:40):
You lead us off here. We’re setting a nice foundation there, cause we’re talking a little CASPA today. Michael, did an awesome job there. And as both, you know, Chris and Michael, as you both know, KCA does a lot with politics in the Harrisburg state Capitol. And it seems as though with CASPA every few years, this issue pops up and there’s a movement of foot amongst the construction industry to kind of tweak CASPA a little bit and improve it. And one of those tweakings came along last session and House Bill 566 came, which passed through the legislature and Governor Wolf signed as Act 27. And are you you’re pretty well versed on that, on that piece of legislation. Aren’t you Michael, you want to touch on that for a little bit.
Michael Metz-Topodas (03:35):
Yeah, no doubt. As, as most of the construction bar was certainly well attuned to what was going on with the changes to CASPA we saw it coming and we all eagerly awaited back in October of 2018 when that bill became law after it was signed a few months earlier it was certainly an interesting and compelling change to how CASPA was structured. I believe it came out of you know, a push from some of the subcontractors to afford them the opportunity to recover and still enjoy the benefits of CASPA because there they were being pushed in certain instances to forego some of the rights that they may have otherwise had. There are several changes that the law created for CASPA, but I really will only focus on the three major ones that became the focus of a lot of the literature and a lot of the discussions that the bar had regarding the changes. The first one involved waiver essentially the statute provided that any contract that asks or purports to have an agreement by a contractor or a subcontractor to waive that entities rights under CASPA, that provision, no matter how many times people agreed to it, signed it initially at whatever is null and void and unenforceable under Pennsylvania law.
Michael Metz-Topodas (05:06):
So that was the first revision there and made it easy for contractors and subcontractors with regarding those provisions, because they could sign the contract and not have to worry about waiving their CASPA rights cause it’s unenforceable. And it’s one less thing to negotiate. You know, during the course of ramping up to getting started on a job the second provision, the second change that the Act amended CASPA render concerned on concern suspension of work for either contractors or subcontractors. And it outlined a schedule that was sort of the floor by which a contractor or subcontractor could effectively suspend work. Oftentimes construction contracts will have provisions that require a subcontractor or a contractor to keep on working despite disputes about payment. This change though, is to make sure that if it’s an undisputed amount then a subcontractor would not have to keep, you know, essentially working for free or, or financing a job.
Michael Metz-Topodas (06:10):
That’s sort of the complaint you hear often from those in the industry, you know, I keep working on financing the job. And so these provisions now allow for a contractor or subcontractor to walk away only a certain procedures are followed. So first you have to wait for the billing period and the payment due date to expire. So at 30 days past the payment due date, a contractor or subcontractor can send written notice to the owner or to the general contractor form it as an agreement notifying that entity that payment has not been received at that point. However, the contractor or subcontractor still has to keep on working and another 30 days needs to go by at which point a second notice would be sent. Now, I certainly recommend that those notices identify the amount owed and identify all the 30 days has passed, identify the statutory provisions.
Michael Metz-Topodas (07:08):
And then also remind you the contractor or the owner that if payment is not received that in accordance with CASPA, work would be suspended. So after the second 30 days, you send a second notice providing all of the information I talked about earlier, as well as notifying the recipient that after another 10 days of nonpayment the contract or subcontract will have a right to suspend work and we’ll exercise that route. Right. and importantly to that second notice must also go to the owner. That’s in particular for subcontractors, obviously the general contractor is already going to be notifying the owner, but for subcontractors, they make sure the owner gets a copy of that second notice for obvious reasons an owner doesn’t want to see its project appended or, or paused for any reason, especially if it can make sure that just by putting a little pressure on the general contractor can keep the project moving along.
Michael Metz-Topodas (08:05):
And then as well as you can see, there’s an obvious benefit to the subcontractors too. So these are the procedures that somebody out in the field needs to follow in order to make sure that they can properly suspend work on a project for nonpayment of again, undisputed amounts. You can have this schedule short and I called it a floor earlier. You can have it shortened by way of contractual agreement, but you can not have it lengthened. So any contract that has terms and conditions that lengthen any of these periods for notice and suspension, they too would be null and void under CASPA. And therefore it would default to what is provided for the statute, the final major change that the admitted CASPA concerned with holding of amounts out an owner or a contractor can withhold amounts from the general contractor or a subcontractor for deficient work.
Michael Metz-Topodas (09:10):
However now under the new CASPA that owner or general contractor must provide a notice of the withholding and an explanation for the reason for the withholding and must do so from within 14 days of the decision to withhold, that applies irrespective of what other contracts or requirements might be. And also in terms of whatever payment schedule might be there. So once the decisions made about withholding there needs to be a notice provided if however, the owner or the general contractor fails to provide this notice then the right to withhold is waived and the payment must be made. So that’s a very important provision. It serves two functions, one, it allows the subcontractor or the general contractor, whomever it may apply whatever the case may be. It allows that entity to correct any work that might be deficient or address the reason for the withholding and as well it ensures that if an owner isn’t conscientious and just withholds the money, but it doesn’t have a good reason or cannot provide one.
Michael Metz-Topodas (10:23):
Then there, isn’t an unnecessary dispute over arbitrary withholdings and that the parties get a, that this isn’t used as leverage over a contractor or subcontractor for their work on the project. I know a lot of that gets, you know, down into the weeds as to how all of these things operate. And it’s really, we’ve given even a very you know precise recitation as to how these provisions operate. I think though that anybody out in the field can see that with all of these measures in place it changes the dynamic as to how a project would proceed. And it gives a great deal of advantage to contractors and subcontractors in the event that they are denied payment, that they are otherwise entitled to. And so it affords that, you know, money is flowing properly that there aren’t suspensions of payments you know, for reasons that aren’t justified and ensures that a project moves efficiently in a manner that’s beneficial to everyone.
Chris Martin (11:26):
Very, very thoroughly explained there. Thank you, Michael, for that, for the third item, though, the withholding that does that notice have to be written, or can that be an oral statement from the owner and or GC? I know that’s written notice written. Okay. Yeah. Just thoughts. I just wanted to make sure about that. And then as far as the suspension of work, there’s quite a few notices that you mentioned. So if you max out on all of those notices, you’re getting close to a hundred days, I believe, right.
Michael Metz-Topodas (12:02):
It could be that long, depending upon, you know, how the payment schedules are set up in the original agreement. Yes. And that was one of the critiques that was brought out. And some people said, well, wait a second. Yeah, that’s terrific. I can suspend work, but my goodness, you know, it’d be so long. I might already be done with my work. If you’re an excavator on a small project, you might be done by the time it comes time to suspend. So yeah, so the one hand there’s a certain benefit, but that practical consideration was noted that that said, Jon, there is a possibility that those who do have a shorter timeframe for work on a project could negotiate perhaps a more favorable schedule. It just depends upon whether it’s worth it to the subcontractor. And that really comes down to a business decision, but I’m glad you asked that question because it really gets down into the intersection as to what the law provides and then how it really operates for guys out in the field. Those sometimes can be two different things.
Jon O’Brien (12:57):
Yeah. You mentioned the site work. I was thinking that as well for the site work, but then also as far as the small, you know, mom and pop shops that get in there might do a little interior work and they’re done in a week or so, you know, their works long gone. And they’re the people that probably need this law the most. And they have to wait for a long amount of time like that. So I’m just thinking out loud here.
Michael Metz-Topodas (13:20):
Well, they might have to wait, but I think the other point is it just might not apply to them. And I think that’s what you’re getting at as well. And it’s a good point is okay, fine. Then they can suspend their work. They finish it and they move on all the other protections that cast before it’s remain. And so if there’s no dispute from the owner about that, the workers performing the money is owed, and for whatever reason that owner or general contractor doesn’t want to pay, they’re going to be subject to that 1% penalty among others. And as well, subject to attorney’s fees for the collection, if it’s a small enough amount, those attorney’s fees could be a substantial portion of the amount. You know, that entity is that business is seeking to get paid. And, that’s a great advantage to allow those small mom and pop shops, Jon, because you know, oftentimes those entities would forgo their rights and just say, well, I can’t go, I agree. You go for that money. It’ll cost me too much money to get what I’m seeking. Well, now, if you know that you’re protected by, but then you can go after the money you’re entitled to. So in that respect you know, cast was original provisions are the ones that are for some of the best protection.
Jon O’Brien (14:26):
Yeah. Good point. Good point there, Michael. Yeah. Also, I mean the law just recently went into effect this year. I believe. I don’t have the exact date, but it’s probably too early to tell any sort of actual feedback, you know, in the field feedback, have you heard anything at all?
Michael Metz-Topodas (14:43):
You know, we really haven’t, I’m kind of surprised by that. The issue of the suspension just hasn’t come up typically. We often advise our clients to continue to keep working on a project only because suspension and again, I mean, look, Jon, you got us right back to the, I think that the key point, which is the law can have its provisions, but what really happens in the field could be different. And that is that if a subcontractor or a contractor decides to suspend for nonpayment, if for whatever reason that entity, that business guesses wrong. And they did not have justification for suspending work, let’s say they were not entitled to the payment that that business was seeking. Then that entity would be liable for all the delay damages, the damages that flow from that suspension. So you gotta be careful now, granted, if it’s, you know, if it’s clear on the project that looked the work was done, there were no objections and then people moved on and, and accepted it then.
Michael Metz-Topodas (15:46):
Yes. I think go ahead and suspend it and not worry about any of the delays. But if there’s any dispute about that or any uncertainty, then you just need to calculate that risk. And the liability that could flow from that even so, you know a measured and calculated suspension you know, could be another way to make sure that payment properly flows. But again, as you point out with that kind of long period there, sometimes the work required it might be long gone long done and completed before that suspension period ever arises.
Jon O’Brien (16:19):
Yeah, that’s true. My favorite is whenever I find myself in the halls lobbying for bills like this and the various subgroups come up to me and they say, you know, if we could only work for your GCs all the time, we wouldn’t have to do measures like this, you know? And I’m like, yeah, but when we do measures like this, you know, we have to change the way we operate just to make sure we’re abiding by the new law and the new contract.
Michael Metz-Topodas (16:48):
Oh, that’s such a great point only because I don’t know, I know we, you and I have talked about this. Others may not know, but before becoming a lawyer, I was a teacher. And one of the things I learned as a teacher in terms of making rules or policy for people is you gotta make your rules for the worst kid in class, not the best kid in class, unfortunately. So good to see the same rule applies in legislation, right? Absolutely.
And that’s a good point, Michael. Michael, I have a question for you. So clearly you have a solid understanding of this law and really know how it, how it works, but if I’m a contractor or a subcontractor, what’s the process that I have to go through to actually make a claim or file under the, under the legislation. If I feel like I’m not being paid accordingly.
Michael Metz-Topodas (17:43):
That’s a great question Chris. And it’s actually a very pointed and almost obscure legal question. We have this debate in the hallways of our firm all the time. I’ll give you the short layman’s answer first, and then maybe we can get to some of the technicalities legally call your lawyer. And that started there. Quite honestly thankfully there, unlike the mechanics lien law, CASPA was a little more forgiving and doesn’t have quite the stringent requirements as to what you need to do to operate under it, separate apart from some of the withholding and suspension provisions. We already talked about any time we file, for example, our firm, we filed complaints against either general contractors or not paying our owners who are not paying we’ll include a breach of contract claim. We’ll include a casebook claim. And we’ll just do it as a matter of course assuming that there’s an undisputed amount for which payment is owed and I can get into later if you guys are curious to why I keep saying undisputed amount, but that’s, that’s a separate issue.
Michael Metz-Topodas (18:43):
But there is this sort of a stylistic debate as to whether you even need to have a separate CASPA account, and you can just put the CASPA damages as part of the breach of contract either way. The way to bring in the way they get recovery under CASPA is to, by bringing legal action. You could arguably, if you have an owner or a general contractor who is not paying, you could just make a request or a demand letter, a demand for that payment and ask for the CASPA damages. But I can’t see to any owner to GCs, we’re going to cough up the interest in attorney’s fees, unless there’s a court order, making them do it. So going to courts the only way and very often to you know, you’ll follow that legal action and then find some sort of settlement you know, that will account for some of those costs, but damages, if you can, otherwise just their mere existence are enough to drive people, to finding a way of resolving a dispute.
Chris Martin (19:37):
Perfect. Thanks, Michael. Yep. No problem. And that’s good for, for our listeners so that they understand, and I kind of figured the first response was going to be call your lawyer cause that’s what I would be doing too. So another question for you in your experience, is there a typical contracting category for that that typically has to fight for this, this form of payment? You know, you mentioned an excavator earlier, you know, like maybe there’s a, is it, do you typically see this in like tile contractors or, you know, residential versus commercial, like help us understand where the, that typically happens.
Michael Metz-Topodas (20:24):
I haven’t made any formal study as to any sort of percentages of that would be a fascinating question to see you know, it’d be a twofold analysis. Who’s not getting paid and then who’s bringing CASPA claims and they’re not always coextensive with each other. That’s not always the same group of people. But certainly I think as we all know, they’re the pressure flows downhill, if you will. And so very often we see a lot of subcontractors, you know, guys who are sort of towards the bottom of the food chain, if you will. Well, I should say the contractual chain only by way of just their positioning on a project. They sometimes fail
Michael Metz-Topodas (21:03):
Certain amount of pressure in terms of, you know, not being able, not receiving the payments promptly or, or payments that are owed or an attempt to try to leverage negotiation from the original amount agreed upon for work perform. And so that, that tends to be yeah. How it will play out. I think really to give a full answer to that Chris would be the subject of a whole another podcast. We actually, as a firm, do a whole presentation on all the things that occur on a project where there are pressure points applied to subcontractors to trim if you will, the amount they otherwise expected to collect for the work performed based on the agreement they have. So it’s a really complicated dance that occurs throughout the life of project. I have also seen instances where owners sometimes just are paying or a dispute them an amount of work. I think also to CASPA tends to come into play on some of the smaller projects only because it’s such a great mechanism to help obtaining payment obtaining payment where there’s, you know, you otherwise might think twice about going down a legal Avenue to obtain recovery.
Michael Metz-Topodas (22:17):
I think the other thing to your point in all of this, I know we’re going a little bit of a tangent here, but because a lot of these issues arise throughout the life of a project. I do have to repeat my warning earlier as to calling your attorney early and often only because this case was definitely a situation or any kind of payment issue on a project where I announced that prevention is worth a pound of cure and early intervention can sometimes be very effective, even if your lawyer’s in the shadows and unknown to the other parties of the involvement. I can provide some effective advice on how to proceed, you know, through the course of a project little field from what you originally asked. But I think it was such a good question that it inspired a lot of that additional information. So thank you, Chris. I appreciate that. That’s good. That’ll help your listeners here in the Building Pennsylvania podcast. So that’s great.
Chris Martin (23:06):
There we go. Yeah. Yeah.
Michael Metz-Topodas (23:08):
I would I know we’ve had a rather technical and detailed discussion here about CASPA and some people might find it overwhelming. And maybe just a lot of detail. And I know certainly there’s a culture and an ethic of look, let’s just get the job done. And I don’t disagree with that. I think at the end of the day that’s what makes our industry great is that there’s that focus on you know rolling up our sleeves if you’ll permit the cliche and putting up buildings and structures that people can use and, things that workers take pride in. But that said it’s always a shame to me when I see people, businesses sometimes, you know, businesses that have been within families for years, generations, et cetera, being shortchanged, any amount of money. And so there are ways of doing both of our roll up our sleeves and getting the job done, but also making sure that you don’t get short changed.
Michael Metz-Topodas (24:06):
And that’s what I mean again, earlier about early intervention with your council. We take calls all the time at our firm from people who are, you know, midway through a project, Hey, what do I do? And we offer the guidance to say, okay, here’s the end game. Let’s see what we can do about today. So we can safeguard your rights for later on tomorrow. And you can go back to doing what you do best. And that is like I said getting the job done. So that’s our role and that’s our philosophy. And we’ve been doing it coincidentally us for, for 30 years. I’ve been honored to be a part of this firm for now since 2014. And I love every minute of it. For a lot of those reasons you guys know as well as I do, we have a great industry full of great people. It couldn’t be more fun.
Jon O’Brien (24:52):
Absolutely well said.
Chris Martin (24:54):
Well, well said, I agree with you. That’s a great way to end it. And thank you for your time and definitely the technical information. Very good information.
Jon O’Brien (25:07):
I just want to remind everyone out there. This is a new law. There’s going to be a lot more questions. This is just the tip of the iceberg. Michael is a resource. But Michael, you want to toss your, your contact info out real quick.
Michael Metz-Topodas (25:19):
Oh, Jon, thank you so much. As you can tell, I kind of like talking about this stuff and I see each other at a lot of KCA events and he probably has always seen me quartering poor guys, lecturing them about everything. So it’s all good. It’s all good. It’s over a cold beer. So it makes it even better, but no, in all seriousness my contact information is on the web at our website. www.cohenseglias.com. I invite anyone and everyone to reach out at any time with any questions, always happy to talk shop about this. I’m always happy to help people out in the industry. As you can probably tell I love our industry. I love being a lawyer and I love helping people.
Jon O’Brien (26:04):
Well, thanks for the education. And I look forward to seeing you at the next KCA event,
Michael Metz-Topodas (26:08):
Jon, thank you for the opportunity to speak to the industry.
Chris Martin (26:10):
Thanks, Mike. And thank you for listening to the Building Pennsylvania podcast more episodes to come and we will talk to you next time. Thank you very much.