Philadelphia Business Lawyers: Prompt Payment Law Decision

Prompt Payment Law Does Not Always Mandate Bad Faith Awards

In an important decision regarding public contracts, The Supreme Court of Pennsylvania reversed a Commonwealth decision automatically awarding attorney fees and a one percent penalty to contractors whose payments were breached in bad faith. The city of Allentown, Pennsylvania (Allentown) contracted A. Scott Enterprises (Scott) to complete a paving project.

After contaminated soil was discovered at the job site, the project was delayed. Allentown and Scott could not come to an agreement over the additional fees incurred because of the project’s delay and the contaminated soil. Scott then filed suit to recover losses on the delayed project. They were awarded $927,299. The jury found that the city breached its contract and acted in bad faith by refusing to pay Scott for the delays and damaged contract.

Though Scott received damages, they were not awarded attorney fees, the monthly one percent penalty, or interest. Scott then took the case to the Commonwealth Court which held that when the jury found that Allentown acted in bad faith, fees and penalties were mandated by law.

Allentown took the case to the Pennsylvania Supreme Court, arguing that the use of “may” in the Prompt Payment Law indicates that the award of attorney fees and penalties is subject to review on a case by case basis. That said, in most cases, public owners found to act in bad faith are required to pay public contractor’s attorney fees and penalties.

Does This Ruling Permit Exceptions?

Allentown has to take the case to trial court, where they may still be required to pay Scott penalties. The Supreme Court decision simply opened the door for exceptions to the rule.

Only in rare cases, very good reasons will exempt owners from paying out those awards. The Procurement Code will most likely prevail in most cases, requiring owners to pay their contractors on time and as agreed upon.

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