Shapiro, Lifschitz & Schram

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John Driggs – Owner, The Driggs Company, LLC

SLS Client Achieves Dismissal of Prompt Payment Act Claim Asserted by Subcontractor

In an issue of first impression for this jurisdiction, the United States District Court for the District of Columbia recently held that the Prompt Payment Act, 31 U.S.C. §§ 3901-3907 does not create a private right of action for subcontractors to sue prime contractors for interest, penalties and fees.
The Prompt Payment Act (“PPA”) was enacted in 1982 and requires government agencies to pay penalties on overdue bills to government contractors.  In 1988, the PPA was amended to include provisions applicable to subcontractors.  Specifically, the PPA provides:

Each construction contract awarded by an agency shall include a clause that requires the prime contractor to include in each subcontract for property or services entered into by the prime contractor and a subcontractor (including a material supplier) for the purpose of performing such construction contract –

(1)    A payment clause which obligates the prime contractor to pay the subcontractor for satisfactory performance under its subcontract within 7 days out of such amounts as are paid to the prime contractor by the agency under such contract; and

(2)    An interest penalty clause which obligates the prime contractor to pay to the subcontractor an interest penalty on amounts due in the case of each payment not made in accordance with the payment clause included in the subcontract pursuant to paragraph (1) of this subsection….

31 U.S.C.A. 3905(b).  Notably, however, the PPA does not include any enforcement provision that would explicitly allow a subcontractor to enforce the requirements of the PPA if the contemplated language is not included in a subcontract or if a prime contractor fails to make timely payments.

In the currently pending case of United States of America, for the use and benefit of IES Commercial, Inc., v. The Continental Insurance Company, Inc., et al., Civ. Action No. 11-0985 (ESH), the plaintiff-subcontractor IES filed a counterclaim against the defendant-prime contractor Grunley Construction Company, Inc., asserting a breach of contract claim against Grunley and a separate claim for “interest, penalties and attorney’s fees” for an alleged breach of Grunley’s “obligations” under the PPA.  Grunley moved to dismiss the PPA claim asserting, inter alia, that the PPA did not create a private right of action for subcontractors to sue prime contractors to enforce the PPA or its payment provisions.  The District Court agreed, dismissing the PPA claim and holding “neither the text of the PPA nor the legislative history reveal an intent to create a private right of action.  Instead the statute and implementing regulations show that the enacting Congress envisioned the PPA’s protections to be enforced in the same manner as other contractual disputes.”  The Court’s opinion is consistent with opinions from numerous other jurisdictions.

The lesson for subcontractors is that you should review the language of your subcontract before you sign it and ensure that the PPA required payment language is included.  You will then be able to enforce those obligations in your breach of contract suit if the prime contractor fails to make timely payments.  If the language is not included in your contract, however, under the law as it currently exists, you will not be permitted to rely on the protection of the PPA to seek interest, penalties and fees.

Grunley Construction Company is represented in this matter by Judah Lifschitz and John Bergin of SLS.

Did You Know . . .

Members of the SLS trial group have tried in excess of 50 jury trials and 75 bench trials?

The SLS construction group has worked on sports stadiums across the country including Orioles Park in Baltimore and Paul Brown Stadium in Cincinnati?

The SLS construction group has worked on power plant projects across the country?

In 2007 SLS was selected for an Honorable Mention as one of the Best Places To Work in Washington DC?

Ron Shapiro, Steve Schram and Judd Lifschitz have all been selected as SuperLawyers by Law and Politics?

The SLS office building is an historic townhouse constructed in the late 1800s?

SLS has been selected by Martindale-Hubbell as a Preeminent Law Firm?

SLS trial lawyers have argued appeals in the U.S. Circuit Courts of Appeal for the 4th, 5th, 9th, D.C. and Federal Circuit?

SLS trial lawyers have been lead trial counsel in cases in Arizona, California, District of Columbia, Florida, Louisiana, Maryland, New Jersey, New York, North Carolina, Oregon, Texas, and Virginia, - to name just a few?

Virtually all the cases that SLS trial lawyers mediated have been favorably settled at mediation?

The transactional group at SLS was lead counsel on one of the largest, most complex mixed-use projects in downtown Washington, DC involving 4 lenders and 6 property owners?

In appreciation for the outstanding efforts of each of its employees during 2007, SLS gave everyone (attorneys, paralegals, and staff) a 4 day/3 night expense paid trip to Key West, Florida?

The transactional group at SLS has represented tenants in more than 200 retail leases in the Mid-Atlantic region?

Every attorney in the transactional group at SLS has at least 15 years experience?

The transactional group at SLS has represented developers in the purchase, construction, financing and/or sale of more than 75 multi-family apartment projects?

The transactional group at SLS has represented real estate investors and developers with respect to property in Pennsylvania, West Virginia, Delaware, Maryland, the District of Columbia, Virginia, North Carolina, South Carolina, Georgia, Florida, Texas, Tennessee, Michigan and the U.S. Virginia Islands?

Attorneys in the transactional group at SLS have represented eight national banks in commercial real estate loans?

Attorneys in the transactional group at SLS have represented the FDIC, the Resolution Trust Corporation and several banking institutions in loan workout transactions throughout the Mid-Atlantic region?

The transactional group at SLS has represented homebuilders and commercial real estate developers in work-outs of individual loans and also for work-outs of large portfolios involving dozens of properties in several states?

The trial lawyers of SLS have numerous reported decisions to their credit?