The Pennsylvania Superior Court recently held that a general contractor was entitled to an award of attorney’s fees under the Pennsylvania Contractor and Sub-Contractor Payment Act (“CSPA”) regardless of whether the property owner who hired the general contractor had a good faith basis to withhold payment.
In Waller Corporation v. Warren Plaza, Inc., Warren Plaza hired Waller Corporation to construct a 15 unit apartment building which was partly funded by a U.S. Department of Housing and Urban Development grant. The parties prepared 8 change orders throughout the project, two of which were unsigned by Warren and were not submitted to HUD for approval. The changes related to the floors of the building and relocation of the unit water heaters. Warren ultimately refused to pay for the changes and Waller brought suit alleging a breach of contract and violations of CSPA.
Following a non-jury trial, Waller was awarded the sum of $69,904.00. The award included the cost of the change orders ($23,470), interest ($12,434) and attorney’s fees ($33,000.00). The court then modified its original award of attorney’s fees from $33,000.00 to $78,071.00 under CSPA after finding, among other things, that Waller was the prevailing party and that Warren was responsible for the large and disproportionate amount of the fees.
Warren argued, and the court agreed, that it had a good faith basis to withhold payment. However, the court found that despite the good faith basis for withholding payment, the CSPA nonetheless authorized the award of attorney’s fees to Waller as the substantially prevailing party.
This case is important for contractors and those entities that work in the construction industry. Despite the lack of a signed and approved change order, the court nonetheless found Warren responsible for the costs of those changes. The protracted litigation, presumably caused by Warren, resulted in an increase in interest on the amount of the additional work plus the award of substantial attorney’s fees.
Contractors and owners involved in construction projects should be aware that even if there is a good faith basis to withhold payment, if they are ultimately unsuccessful in the claim, they could be liable for attorney’s fees under CSPA. These potential increases in the award should cause contractors and owners to carefully evaluate those instances where they decide to not make payments under a contract for certain change orders and when to bring a lawsuit to recover payment.
Having an attorney evaluate the contract and the potential claim early in the dispute is critical to making a proper evaluation. As in this case, Warren’s decision to litigate the matter turned an otherwise manageable increase in the contract for the changes totaling $23,470.00 to an award of over $100,000.00.
As a contractor, when you are confronted with a potential claim for nonpayment under the terms of a contract, you must evaluate whether CSPA applies and what the potential is for recovery of interest, penalties and attorney’s fees under that law. As an owner, you must likewise be mindful of whether the contract falls under CSPA and whether you be subjected to additional liability under CSPA.