The Right to Payment for Stored Materials on Public Projects - And the Reality
Contractors on public building projects have the benefit of statutory payment rights that the legislature has said are to provide "a method of prompt payment to contractors". That statute, M.G.L. c. 30, §39K, includes a specific requirement that public Awarding Authorities pay contractors for stored materials as part of regular periodic payments.
Not only does c. 30, §39K give contractors a statutory right to payment for materials stored on the project site, it also gives them the right to payment for materials stored off-site, if the Awarding Authority approves the off-site location (which approval cannot be unreasonably withheld). And not only is the Authority statutorily obligated to pay for stored materials purchased directly by the contractor, it is also obligated to pay for materials purchased and stored by subcontractors.
For stored materials to be eligible for payment, c. 30, §39K requires only that the contractor have title to those materials. This is an easy legal requirement to meet because, under the Uniform Commercial Code which governs sales of materials, legal and transferrable title to materials automatically vests in a contractor upon delivery from the supplier.
To obtain payment for these stored materials, the statute simply requires the contractor to provide the Awarding Authority a certification signed by the contractor stating it is the lawful owner and the materials are free from encumbrance. As to materials stored by a subcontractor, the statute simply requires the sub to authorize the contractor to transfer its title to the Authority.
C. 30, §39K is crystal clear that, upon receipt of the contractor's written certification (and any subcontractors' authorizations), the Awarding Authority is statutorily obligated to pay the contractor the value of those stored materials, less retainage. There are no other statutory conditions to payment. And an Authority has no legal right to impose its own conditions for paying stored materials beyond those imposed by the legislature in c. 30, §39K.
Unfortunately for contractors, the right to payment does not always square with reality. Many Awarding Authorities fail to pay for stored materials as c. 30, §39K requires. Some Authorities refuse to approve off-site storage as a matter of policy. Some Authorities require the contractor to pay for stored materials in advance. And some Authorities require releases or indemnification agreements from suppliers as a condition to payment for stored materials.
These added conditions, requirements and arbitrary refusals defy clear statutory language and create impenetratable barriers to payment for stored materials. They violate c. 30, §39K and frustrate the legislative purpose behind it, which the Court has said is to encourage more contractors to bid public work and to encourage them to submit their lowest price by assuring prompt payment both for work performed and for stored materials.
An Awarding Authority which refuses prompt payment for stored material in accordance with c. 30, §39K breaches both its statutory obligation and its contract. A continued refusal to pay could constitute a substantive breach justifying the contractor's suspending or terminating its performance. At minimum, an Authority's failure to pay for stored materials triggers the penalty interest provision of c. 30, §39K, which requires an Authority to pay interest at a rate three points above the federal discount rate on all amounts it fails to pay as required by c. 30, §39K.
Any contractor who is improperly refused payment for stored materials should demand the Awarding Authority pay statutory penalty interest on all amounts wrongfully withheld.
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