A new law has recently gone into effect in Massachusetts that drastically changes the relationships between private owners, contractors and subcontractors; and some people are going to suffer severe financial hardship as a result. For some inexplicable reason, the Commonwealth of Massachusetts has decided to interfere in what has been traditionally been the private right to contract. The new law has three main points; each more insidious than the next.
First, “pay when paid” and/or “pay if paid” provisions commonly found in subcontracts are now prohibited by statute in the Commonwealth of Massachusetts. Many general contractors simply are unable to pay their subcontractors until they receive payment from the owner. Thus, they write their subcontracts to make the subcontractor’s payment due a reasonable time after the contractor receives payment from the owner. Now, “every contract for construction shall provide reasonable time periods within which” an application for payment shall be submitted, approved and paid. Contract provisions that first require that the contractor to receive payment from the owner are void except in cases where the subcontractor has performed defective work or is insolvent.
Second, general contractors must abide by the time requirements for the review and approval of pay applications or suffer an extremely harsh result.