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Contract's Payment Terms Governed, Not Prompt Payment Act

Monday, December 03, 2018 02:25 pm


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.


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