Contract's Payment Terms Governed, Not Prompt Payment Act

Monday, December 03, 2018 9:29 am
December 2018 - Volume 40 Number 12

Surety --- Payment

Charlestown Twp. v. United States Sur. Co., 2018 U.S. Dist. E.D. Pa. Lexis 143100 (August 22, 2018)

A takeover agreement between a project owner and bond surety incorporated the original construction contract---and its payment terms---which the surety failed to follow. So the Prompt Payment Act was no help in recovering money the surety spent on a replacement contractor.

In August 2015, Charlestown Township (the Township) entered into a contract with Out of Site Infrastructure, Inc. (OSI) to perform work on a construction project in Phoenixville, Pennsylvania. In connection with OSI’s work on the project, the United States Surety Company (USSC) provided a performance bond and a payment bond valued at $1,143,000 each.

According to the Township-OSI contract, OSI was to complete its project work no later than May 13, 2016. Apparently, it did not because, on May 24, 2016, the Township issued a letter declaring the contractor in default and terminated the contract.

In August 2016, the Township and USSC signed a takeover agreement, and USSC hired a replacement contractor. In December 2016, USSC submitted a payment application to the Township, claiming that all the work required by the takeover agreement had been completed. The Township disagreed and rejected the request, withholding final payment.

The Township sued the surety for breach of contract, and USSC counterclaimed, charging the project owner with[..]