Contractors, subs, and suppliers on public projects are afforded many protections. While mechanics liens may not be available, the Miller Act, Little Miller Acts, and prompt payment laws work to make sure construction workers are paid when dealing with governments and their awarding authorities. Public projects are not without their payment disputes, though. While payment and performance bonds help resolve many issues, when disputes arise between the awarding authority and a contractor, they provide little assistance. Recently in Pennsylvania, such a dispute arose in A. Scott Enterprises v. City of Allentown. The contractor ended up suing the city of Allentown, and the subsequent appeals went all the way to the Supreme Court of Pennsylvania. By the time it reached the state’s highest court, one issue remained: must courts award bad faith penalties and attorney fees when a Pennsylvania awarding authority is found to be in bad faith? Or is that left to the court? The Supreme Court of Pennsylvania found that the awarding of penalties and fees was up to the discretion of the court.
The Facts
The city of Allentown, Pennsylvania hired contractor ASE to build a road. When testing the soil on the project site, a high level of arsenic was found. After further testing, city determined that construction could resume so long as certain measures were taken. The city wanted to continue to build the road pursuant to its contract with ASE. ASE declared that it would suffer substantial extra costs due to the arsenic in the soil. The city and ASE tried to come to terms with a new contract, but could not reach an agreement. As a result, ASE sued the city to recover losses and for breach of contract, among other claims.
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The Case
Trial court found that Allentown breached its contract with ASE. While the court also found that there was sufficient evidence to have the jury decide on ASE’s bad faith claim, the court declined to award penalty. Both parties appealed.
On appeal, ASE claimed that the trial court improperly withheld an award of statutory penalty and attorney’s fees that, ASE argued, are mandatory when a just finds a government entity acted in bad faith. The City argued that it was within the discretion of the court whether or not to award bad faith penalties and attorney fees. This court agreed with ASE, finding that when a government agency is found to be in bad faith, courts are required to impose statutory penalties and attorney fees. The City appealed to the Supreme Court of Pennsylvania.
At the Supreme Court of Pennsylvania, the City again argued that it is within a court’s discretion whether or not to provide statutory penalties and attorney fees. ASE argued that while the amount of such penalties and fees is at the discretion of the court, the court may not refuse them altogether. Alternatively, ASE argued that should the the trial court have ultimate discretion as to whether or not fees and penalties are imposed, the trial court abused its discretion here. The court agreed with the City of Allentown.
The court found that by the rules of statutory interpretation, the statute created a permissive rather than mandatory situation regarding the award of penalties and fees. It did so by helping to define the word “may” over a three page span. The court used the inclusion of the word “shall” in CASPA, Pennsylvania’s prompt payment statute for private projects, to contrast the use of “may” under the Procurement Code, the prompt payment statute for Pennsylvania public projects.
The Supreme Court of Pennsylvania, however, found that the trial court, while having discretion whether or not to award penalties and fees, did not properly approach the issue on first hearing. Because the court did not apply any standard or consider any factors in determining not to award ASE attorney fees or penalties, it abused its discretion. The court remanded the case to the trial court for further proceedings.
Takeaway
Ultimately, the court found there was a difference between prompt payment on public projects and private projects: on Pennsylvania private projects, the court shall award penalties and fees when a party withholds payment in bad faith. On Pennsylvania public projects, a court may award penalties and fees, meaning, it is up to the court’s judgment. After all of the claims and appeals and money spent on this payment dispute, the decision boiled down to one three-letter word.
For more on Pennsylvania public projects, as well as other topics from the state, check out our Pennsylvania Lien Law FAQs or or other Pennsylvania posts on the blog.
