Conn Kavanaugh’s construction law team recently achieved a successful result at the Supreme Judicial Court (“SJC”) in a decision that will have significant impact for the Massachusetts construction industry.

On June 17, 2024, the SJC, the Commonwealth’s highest court, issued its first decision interpreting the Prompt Pay Act (“PPA”), Mass. Gen. Laws c. 149, § 29E. This decision, Business Interiors Floor Covering Trust v. Graycor Construction Company Inc., is significant for all participants in the Massachusetts construction industry, including owners, general contractors, subcontractors, construction managers, architects, and engineers.

What is the Prompt Pay Act? Enacted in 2010, the PPA applies to Massachusetts construction contracts having an original contract price of $3 million or more. (There is an exemption for residential construction projects involving less than 4 four dwelling units.)

• The PPA prohibits “pay if paid” and “pay when paid” clauses in contracts.
• It establishes strict deadlines within which “applications for periodic progress payments” must be rejected or paid.
• Generally speaking, an application is deemed approved unless it is rejected in writing within 15 days of submission. Payment must be paid within 45 days of approval.
• A rejection is not valid unless it is made in writing, contains an explanation of the factual and contractual basis for the rejection, and is certified as made in good faith.

The PPA’s overall purpose is to ensure both prompt payment of invoices and prompt resolution of disputes about such invoices.

The Facts of Business Interiors. Business Interiors arose out of a project to construct a cinema near the TD Garden. The project owner was Pacific Theaters Exhibition Corp. (“Pacific”) and its general contractor was Graycor Construction Co. (“Graycor”). Graycor hired Conn Kavanaugh’s client, Business Interiors, to install flooring on the project.

During the COVID-19 pandemic, Pacific fell into financial distress, and stopped paying Graycor. Graycor, in turn, stopped paying its subcontractors, including Business Interiors. During this time period, Business Interiors submitted three applications for periodic progress payments which Graycor failed to either reject or pay within the PPA deadlines. Business Interiors later filed suit to recover the unpaid funds owed for its work. Graycor’s principal defense was that financial pressures from the pandemic excused its failure to meet the PPA’s requirements.

The Holding of Business Interiors. The SJC held that the Superior Court correctly granted summary judgment to Business Interiors on its claim that Graycor breached the parties’ contract by failing to pay Business Interiors within the PPA deadlines. The SJC held that “a contractor that does not approve or reject an application for payment in compliance with the time periods and other requirements of the act must pay the amount due prior to, or contemporaneous with, the invocation of any common-law defenses in any subsequent proceeding regarding enforcement of the invoices.”Further, the SJC held that the PPA applied even though Business Interiors’ lien rights had expired under Mass. Gen. Laws c. 254, §§ 2, 4. While the PPA cross-references the lien statute in defining what types of construction contracts fall within its ambit, this is meant to define the PPA’s scope “broadly, not narrowly.”

Finally, the SJC reversed the lower court’s decision to grant separate and final judgment to Business Interiors on its breach of contract claim under Mass. R. Civ. P. 54(b). This rule gives judges the discretion to grant final judgment to a party on only one claim in a case before all other claims, counterclaims, and cross-claims have been fully adjudicated. The Appeals Court’s 2022 decision in
Tocci Building Corp. v. IRIV Partners, LLC had essentially held that a prevailing party on a PPA claim is automatically entitled to separate and final judgment. The SJC reversed that aspect of Tocci, and held that the PPA still requires a “traditional and not truncated” Mass. R. Civ. P. 54(b) analysis.

In sum, Business Interiors affirms that a party’s failure to reject or pay a periodic payment application within the PPA’s strict deadlines must have “meaningful consequences.” Therefore, any individual who plays a role in submitting or paying invoices for an owner, general contractor, subcontractor, construction manager, architect, or engineer on a Massachusetts construction project should be familiar with the PPA.

Click here to read the decision.