Answer: Generally, yes.
Payments to subcontractors on public contracts are initially governed by G.L. c. 30, § 39F, which states in regard to periodic payments, “[f]orthwith after the general contractor receives payment…the general contractor shall pay…each subcontractor.” G.L. c. 30, § 39F(1)(a). This language is compared to G.L. c. 30, § 39F(1)(b), which states in regard to final payment that “[n]ot later than the sixty-fifth day after each subcontractor substantially completes his work…the entire balance due under the subcontract…shall be due the subcontractor.”
Where G.L. c. 30, § 39F(1)(a) specifically denotes that payment shall be made after the general contractor receives payment, and G.L. c. 30, § 39F(1)(b) fails to include that language, a principal may be able to assert a pay-when-paid defense for unpaid periodic payments but not for unpaid final payment. See also, Connolly, J., “Fidelity and Surety Bonds” Massachusetts Continuing Legal Education 16-1 (2020) (“A surety, then, can assert its bond principal’s pay-when-paid defense if the claimant is suing for unpaid periodic billings.”); Lewin, J., Eisenberg, E., 57 Mass. Prac., Mass. Construction Law § 9:87 “Surety defenses—Availability of pay-when-paid defense to surety” (Dec. 2021 update).
However, the Massachusetts Appeals Court, in Bayer & Mingolla Indus., Inc. v. A. J. Orlando Contr. Co., 6 Mass. App. Ct. 1, 2 (1978), stated
the phrase “upon receipt of final payment by the owner” should be interpreted as setting a time for payment which is sufficient to give the general contractor an opportunity to obtain funds from the owner, and not as creating a condition precedent to payment where there is a dispute between the owner and the general contractor not involving the subcontractor.
Id.
G.L. c. 30, § 39F can be coupled with language specifically set forth in the subcontract. A general contractor must therefore look both to the language in G.L. c. 30, § 39F and the language explicitly set forth in the subcontract to determine if it may assert a pay-when-paid defense.
A principal may only assert a pay-when-paid defense when the pay-when-paid language in the subcontract is explicitly and expressly set forth. A. J. Wolfe Co. v. Baltimore Contractors, Inc., 355 Mass. 361, 365–66 (1969). An example of such language is: receipt of payment by the Contractor shall be a condition precedent to any payment to the Subcontractor hereunder. Canam Steel Corp. v. Bowdoin Const. Corp., 34 Mass. App. Ct. 943, n. 1 (1993).
A general contractor is therefore entitled to assert a pay-when-paid defense on a public construction project governed by G.L. c. 30, § 39F when the subcontract at issue contains explicit “pay-when-paid” and “condition precedent” language.
