Meaningful Consequences: Massachusetts Supreme Judicial Court Strictly Interprets the Prompt Pay Act

By Jonathan Burwood, Senior Partner

On June 17, 2024, the Massachusetts Supreme Judicial Court issued its first interpretation of the Commonwealth’s Prompt Pay Act (M.G.L. c. 149, s. 29E) through its decision in Business Interiors Floor Covering Business Trust v. Graycor Construction Company Inc., et al. The SJC’s decision comes exactly two years after the Appeals Court’s first interpretation of the Act in Tocci Building Corporation v. IRIV Partners, LLC, et al. Though the Act was passed in 2010, these recent decisions provide construction professionals subject to the Act with clear and consistent guidance as to the parameters of its enforcement.

In Tocci, the Appeals Court enforced the Act’s requirement that objectionable requisitions must be rejected: (1) on time, (2) in writing, with an explanation of the factual and contractual basis, and (3) with a certification that the rejection is issued in goof faith. The failure to timely reject a requisition in a writing that includes all of the specified content, results in the requisition being “deemed approved” and immediately payable. The SJC’s decision in Business Interiors, though focused on different aspects of the Act, is unmistakably consistent with the Tocci decision as both courts are loyal to the fundamental terms of the Act. Where the Tocci court emphasizes the necessary timing and content of a rejection compliant with the Act, the SJC in Business Interiors is focused on how a contractor’s underlying defenses to payment may be preserved and enforced in the event a disputed requisition is not properly rejected. In this regard, the SJC held that the contractor in Business Interiors did not waive its defenses by failing to approve or reject requisitions in violation of the Act. Rather, the contractor could have preserved and subsequently enforced those defenses by first paying the subject requisitions, and later (or contemporaneously) asserting them in a subsequent action to, for example, disgorge the payment. In so ruling, the SJC gives full weight to the intent of the Act (ensuring prompt payment of subcontractors), and to the technical requirements of a rejection (timing, content, and certification), while also salvaging a contractor’s right to substantively dispute entitlement despite imperfect compliance with the Act. The court validates this necessary balance of rights and obligations by citing the “hard-fought compromise” between contractors and subcontractors that resulted in passage of the Act. 

In the wake of Tocci and Business Interiors, it is clear that disputed requisitions subject to the Act must be rejected on time and in a fully compliant written notice. Though in practice, where garden variety disagreements about requestions are common, the outright and formal rejection required by the Act may seem like overkill or otherwise threaten a valuable project relationship. Under those circumstances, communication is key. For example, the parties could agree that the disputed requisition will be voluntarily withdrawn until such time as an agreed upon revision can be submitted. Otherwise, a contractor can issue a timely and compliant rejection accompanied by an explanation that doing so is required by the Act (and the subcontract which is required to incorporate the terms of the Act), and that good faith negotiations towards submission of an agreed upon revision will continue. In the unfortunate event a disputed requisition is not properly rejected and is therefore deemed approved, Business Interiors provides tough but fair recourse. Though the subject requisition must first be paid in compliance with the Act, doing so will preserve substantive defenses and keep the door open for recovery of the disputed amount paid. Though the concept of paying a disputed amount only to immediately pursue its return is largely contrary to the conventional wisdom of contracting parties, particularly owners, contractors, and subcontractors, the SJC determined that is the only way to ensure that the requirements of the Act have “meaningful consequences.”