Delaware Revises its Payment Act and Mandates that All Construction Contracts Be Governed by Delaware Law

On June 25, 2012, Governor Jack A. Markell signed legislation that provides for significant revisions to a statute formerly known as the “Delaware Building and Construction Payments Act.” By enacting House Bill 109, the statute has been renamed the “Building Construction Procedures Act” (the “Act”).

More significantly, the scope of the Act has been expanded to include all services provided on construction projects. In addition, the Act now provides that all construction contracts must be governed by Delaware law and all litigation, arbitration, mediation or other dispute resolution procedures must take place in the state of Delaware. Specifically, the Act states:

It shall be against public policy and shall be void and unenforceable for any provision of a construction contract to … [r]equire the contract, subcontract, agreement or understanding between a contractor and subcontractor to be subjected to the laws of a State other than Delaware or require litigation, arbitration, mediation or other dispute resolution procedures to occur in or be governed by the laws of a State other than Delaware.

This new provision is significant to most owners and general contractors, because it will require them to revise their standard form contract, and become familiar with Delaware construction law.

In addition to the above-referenced revisions, the Act also allows parties to recover significant penalties and attorneys’ fees against parties that wrongfully withhold money in bad faith. The Act states:

If arbitration or litigation is commenced to recover payment and it is determined that the owner, contractor or subcontractor has failed in good faith to comply with the payment terms of the contract or this title, the arbitrator or the Court, whichever applicable, may award the amount determined to have been wrongfully withheld, plus an amount equal to the amount wrongfully withheld, as additional damages. An amount shall not be deemed to have been wrongfully withheld to the extent that it bears a reasonable relationship to the value of any disputed amount or claim held in good faith by the owner, contractor or subcontractor against whom the contractor or subcontractor is seeking to recover payment.

The party commencing arbitration or litigation shall have the burden of proof that payment has been wrongfully withheld.

Absent any agreement to the contrary between or among the parties, the arbitrator or the Court in any proceeding arising under this chapter may award to the substantially prevailing party its reasonable attorneys’ fees, arbitration or court costs and expenses, and expenses for expert witnesses if applicable. Any award of attorneys’ fees shall not be limited by 10 Del. C. § 3912.

Finally, the Act changes the time for an owner or contractor to dispute an amount stated in an invoice from 7 days to 15 days. Under the Act, if written notice is not given within 15 days of the receipt of the disputed invoice, the invoice shall be deemed to be accepted and payment shall be made by the owner or contractor. It should be noted that despite payment of an invoice, the owner or contractor does retain the right to challenge the quality of work covered by any undisputed invoice.

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

Proudly powered by WordPress