DEMAND FOR DIRECT PAYMENT ( MASSACHUSETTS PUBLIC WORK)

By Jonathan P. Sauer

A demand for direct payment is a way for a ' subcontractor’ to be paid by the awarding authority for both progress payments and for final payments on certain kinds of public work.. For the purposes of this remedy, a 'subcontractor' is defined as being three things: (1) a filed sub-bidder with a written subcontract on public building contracts; (2) for either public buildings or public works, an entity approved by the awarding authority in writing as a person performing labor or both performing labor and furnishing materials pursuant to a contract with the general contractor; (3) for contracts with the commonwealth (only) and not awarded under the competitive bid statute for buildings, a person contracting with the general contractor to supply materials used in a public works project for a price in excess of five thousand dollars.

Please note that statute does not specifically define how one gets to be approved in writing by the awarding authority. What has seemed sufficient in many matters has been for the subcontractor who is not a filed subbidder to simply send a letter to the owner at the beginning of the job - contractual protocol suggests sending the letter through the general contractor - requesting that the owner approve the subcontractor in writing for performing the (describe the work) work for the project at issue. I know many subcontractors who are not filed subbid trades (steel comes to mind) who make this a practice as part of the initial paperwork for the job. While the statute is silent on this issue, requesting to be approved in writing after the work is done is probably insufficient.

Now, when you have not been specifically “approved in writing” by the awarding authority, this is what you should say. “Though (your company’s name) has no specific, explicit approval in writing by the awarding authority as a subcontractor for this project, it is, nonetheless, an eligible subcontractor to file a demand for direct payment. It is listed in various meeting minutes and other contract records kept by the awarding authority as a subcontractor for this project. By authority of Revoli Construction Co. Inc. v. Town of Andover, 10 Mass.L.Rptr. 688, 10 Mass.L.Rptr. 688, 1999 WL 1203789 (Mass.Super.) and P.J. Gear & Son, Inc. v. Commonwealth, 2001 WL 170456 (Mass.Super.), (your company’s name) is considered to be ‘approved in writing’.” This language would replace the first two lines of the attached letter up to and through the word ‘ Massachusetts’. This procedure may or may not work. Superior court case decisions are not necessarily considered to be something a court has to follow – so-called mandatory authority. Still, I have seen it work before with some of my clients.

Chapter 30, section 39F of the General Laws establishes various payment procedures between general contractors and subcontractors on public work, and establishes a remedy whereby the subcontractor not properly paid pursuant to the statute can demand payment directly from the awarding authority. Indeed, I have been able to obtain $125,000 for one of my clients by writing only one letter, which letter constituted a demand for direct payment.

Under C. 30, s. 39F of the General Laws, the general contractor is required to pay the subcontractor forthwith after the general contractor receives the money from the awarding authority less amounts claimed dy by the general contractor from the subcontractor. I am not aware of any definition of ‘forthwith’ in the statute or case law but think that seven calendar days is the outside for what ‘forthwith’ would be considered as reasonable.

Not later than 65 days after a subcontractor substantially completes its work, the entire balance due to the subcontractor, less amounts retained by the awarding authority for incomplete and unsatisfactory work, is due.

If, within 70 days after a subcontractor substantially completes its work, the subcontractor has not received the balance due under its subcontract, less amounts retained for incomplete or unsatisfactory items of work, the subcontractor may file a demand for direct payment.

What is a demand for direct payment?

A demand for direct payment is, simply, a letter. However, the letter has a very specific format. If you follow this format -- and see a sample demand for direct payment at the end of this paper -- this is something that you can do yourself without having to have a lawyer do it for you.

The letter is first and foremost a sworn statement. This means that the letter has the effect of a statement under oath. Take this responsibility seriously: tell the truth, the whole truth and nothing but the truth, so help you Jack Webb! As the wicked witch told Dorothy, be sure to do this or maybe someone will drop a house on you!

The letter is delivered (obtaining a receipt, a constable is preferable for this) or, in the usual circumstance when time is not a problem, by certified mail, return receipt requested, to both the authority with a copy to the general contractor sent in the same manner. In other words, have both delivered or have both sent certified mail. Be sure to list the general contractor in the ‘cc’ portion of your letter.

The demand must contain a detailed breakdown of the balance due with a statement of the status of completion of the subcontractor's work. I recommend strongly that if there are

any areas of dispute between you and the general contractor, or claimed backcharges from the general contractor which you do not accept, that you identify and discuss these in the letter.

For example, let's assume that Superior HVAC has a $100,000 HVAC subcontract with nothing paid. Let's assume that there is a monetized punchlist with $3,000 being held for HVAC items. Moreover, Last Chance Construction, the general contractor, is backcharging Superior (unfairly, Superior believes) $13,000 for various items. It would be a better strategy in presenting the demand for direct payment to indicate the account as $100,000 less a disputed $10,000 backcharge for delay and less a $3,000 monetized punchlist item for a balancing report for a total net presently due of $87,000. This demand can be sent any time after substantial completion (and the statute also provides for sending demands prior to substantial completion as to periodic payments.)

The general contractor may respond but must do so within10 days after the subcontractor has delivered or mailed a copy of the demand. In other words, the general has ten days to answer from the date indicated on the green card as when he received it. One of the reasons that you want to have an especially accurate contract breakdown, is that the general contractor has an opportunity to refute Superior's claim in its response. Let's assume, for the moment, that we are back to our HVAC situation with a $100,000 contract (and nothing paid) with a $3,000 monetized punchlist and a $10,000 backcharge from Last Chance.

If Superior were to submit the claim for $100,000 without reference to the backcharge and hold-back items, this would give the general contractor more incentive to refute Superior's

claim for the undisputed portion, which is presently $87,000. Morever, by referencing these items in his response, this could cause an awarding authority to doubt the veracity of the

$87,000 undisputed claim since in making the presentation Superior did not refer to the $13,000 which is either presently not due or in dispute and which Superior presumably was aware of when it made the demand.

Moreover, and as strange as this may seem, sometimes general contractors will not respond within 10 days as they are required by the statute. If they do not respond within 10 days, the awarding authority is within its rights and, in fact, authorized by the statute to process your claim for payment out of the remaining monies due to the general contractor within fifteen days after receipt of the demand.

If your statement is accurate, the general contractor may not care to refute it, more particularly if this is a general contractor of integrity or one who essentially agrees that you are owed what you claim. On the other hand, it will cause you no surprise for me to say that sometimes general contractors will refute perfectly legitimate demands for direct payment to avoid an interruption in their cash flow.

An important thing to keep in mind is that some general contractors simply lose track of the demand for direct payment and/or do not understand that they must make a response and/or

that it has to be under the pains and penalties of perjury, contain a detailed statement of your account and sent to the awarding authority and to the affected subcontractor by certified mail, return receipt, or delivered as by a constable.

As I indicated earlier, I was able to obtain for one of my clients $125,000 on a demand for direct payment. This particular general contractor did not respond to the demand for direct payment for reasons I am not aware of, although I suspect he simply lost track of the demand and the response time within 10 days and with the same format.

The general contractor's response must also be by a sworn statement, delivered or sent certified mail to the awarding authority and to the subcontractor and contain a detailed

breakdown of any amount due to the subcontractor, including claims by the general contractor against the subcontractor.

This presents a second opportunity for the subcontractor to get paid. The first opportunity is that the general contractor either might ignore the demand for direct payment or might fail to make a response within ten days as is required by the statute. In such a case, the subcontractor has a lot of leverage with the awarding authority in demanding payment.

The second opportunity for the subcontractor is that even if the general contractor does make a response within ten days or when the response is not: (1) by a sworn statement; (2) delivered or sent certified mail to the awarding authority and to the subcontractor; or (3) does not contain a detailed breakdown of any amounts due to the subcontractor and claims by the general

contractor against the subcontractor. Thus, if the general contractor in making a response within ten days fails to include in his response these various important elements, there are substantial grounds for the subcontractor to argue with the .awarding authority that no proper response was made by the general contractor.

What happens next? Within fifteen days within receipt of the demand by the

awarding authority, the awarding authority shall make to the subcontractor - less any estimated amounts for unsatisfactory work or monies disputed by the general contractor in a properly executed reply - payment for the balance. If the awarding authority fails to do so, the subcontractor can sue the awarding authority to enforce this obligation, although typically it makes more sense to simply make a payment suit on the general contractor’s payment bond at an appropriate time, as a claimant’s legal fees are part of any judgment made on such claim, which would not be the case in the claim against the public owner.

Any monies disputed by the general contractor are supposed to be placed by the awarding authority in an interest-bearing joint account, which monies abide either a settlement between

the general and the sub or a judicial award. Of course, the whole idea is to take the funds out of the general contractor’s operating funds, which presumably promotes a more reasonable attitude in strained circumstances!

The subcontractor can enforce his claim by commencing an action in the superior court against the general contractor for payment, or, if the awarding authority refuses to make a direct

payment despite a lack of objection or refuses to deposit disputed money in a joint account, by commencing an action the superior court against the awarding authority. Please note: the statute has no specific feature within it for the resolution of the dispute. The two basic ideas of the statute are to fund any disputed claim that will come and to pay presently any claims which are not disputed.

In summary, while there are several distinct steps that have to be taken as to a demand for direct payment, and as to which steps there must be strict adherence, in the grand scheme

of things this is an extremely low-cost way of obtaining money on Massachusetts public work and, a procedure you can feel comfortable handling yourself.

SAMPLE FORM FOR DEMAND FOR DIRECT PAYMENT

(pursuant to Chapter 30, section 39F of the General Laws)

December 30, 1998

CERTIFIED MAIL, RETURN RECEIPT REQUESTED P 251 355 521

Ms. Jane Doe

Department of Public Buildings

Commonwealth of Massachusetts

One Beacon Street

Boston , MA 02108

Re: Project: Construction of New Boston Bocce Stadium

Contract No.: 12345

General Contractor: Last Chance Construction Company

Claimant: Superior HVAC Contractor

DEMAND FOR DIRECT PAYMENT UNDER

CHAPTER 30. SECTION 39F OF THE GENERAL LAWS

Dear Ms. Doe:

I, John Q. Public, being duly sworn, do on oath depose and say the following.

1. I am the President of Superior HVAC Contractor, a Massachusetts corporation, with an address of 253 Summer st., Boston, MA 02210 (hereinafter SUPERIOR) .

2. On January 15, 1998, SUPERIOR entered into a contract with Last Chance Construction Company (hereinafter LAST) , general contractor for the construction of the above-referenced work, consisting of the construction of the New Boston Bocce Stadium, to provide certain enumerated items, including an air conditioning system.

3. SUPERIOR, an approved contractor, being approved in writing by the Department of Public Buildings for the Commonwealth of Massachusetts, has substantially completed its work on or

about September 15, 1998 for the above-referenced project. The only remaining work to be performed at this project is the submission of a balancing report, the fair value of which is

$3,000. There is also a disputed backcharge to SUPERIOR for delay which SUPERIOR does not accept.

4. As of September 15, 1998, LAST has not paid SUPERIOR anything relative to the subcontract between the parties for SUPERIOR’S supply of labor, materials and equipment at the above-referenced project.

5. The original subcontract value was $83,500. There have been change orders, approved in writing and signed by both parties of $16,500 with a total adjusted contract of $100,000. Less $3,000 to be held for the submission of the balancing report and the disputed backcharge in the amount of ten thousand dollars for delay, $87,000 is presently due to SUPERIOR.

6. The work under this subcontract was substantially complete on September 15, 1998, and, therefore, has been substantially complete for at least 70 days with no payment whatsoever from

LAST.

7. Superior HVAC Contractor demands direct payment from the Department of Public Buildings as the awarding authority pursuant to Chapter 30, section 39F of the Massachusetts General Laws in an amount up to and including $87,000 representing the fair value of the work performed by Superior HVAC Contractor as of December 30, 1990.

Signed under the pains and penalties of perjury this thirtieth day of December, 1998.

_____________________

Superior HVAC Contractor

by its President, John Q. Public

COMMONWEALTH OF MASSACHUSETTS

Suffolk , ss. December 30, 1998

Then personally appeared the above-named John Q. Public, to me known, who after

Being duly sworn did say that he is the President of Superior HVAC Contractor, and that the

foregoing demand for direct payment was signed on behalf of said corporation by authority of its board of directors, and that the execution of said instrument was acknowledged to be his true and free act and deed.

_________________

Notary Public

My Commission Expires :

cc: Mr. John Smith, Last Chance Construction Company,

Fleabag Office Park, 99 Hopeless Street, Boston, MA 02109

Certified Mail - return receipt requested P 251 355 522

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Copyright, Jonathan Sauer, 1996

This article is intended to be general information and does not constitute specific legal advice. If you need legal advice, your interests would be best served by consulting with an attorney knowledgeable in the area of your concern.

Jonathan P. Sauer
Attorney at Law
Suite 416.1410 Providence Highway
Norwood , MA 02062
Phone: 781-255-0222 / Fax: 781-255-9777
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