Federal Prompt Pay Act Does Not Afford Subcontractors Right to Sue General Contractor

On October 15, 2020, in EMTA Insaat Taahhut ve Ticaret A.S. v. Cosmopolitan Incorporated, a federal district court held that the federal Prompt Pay Act (PPA) (31 U.S.C. §§ 3901, et al.) does not create a private right of action for a subcontractor against a general contractor. The dispute arose from a project for the installation of hardened trailer systems at the U.S. consulate in Turkey. The subcontractor alleged that the general contractor failed to make payments, including interest penalties required by the PPA, under the parties' subcontract.

The subcontractor sued the general contractor for breach of contract and breach of the PPA. The general contractor moved to dismiss the breach of the PPA claim arguing that the PPA did not provide the subcontractor with a private right of action. Opposing the motion, the subcontractor contended that, because the subcontract incorporated the terms of the prime contract and the prime contract was governed by the PPA, the subcontract was also governed by the PPA. The subcontractor, therefore, alleged that the right to collect interest was a matter of contract—not statute. The federal district court rejected the subcontractor's argument and granted the motion to dismiss. The court found that "courts have repeatedly rejected the argument that the PPA contains either an explicit or implied private cause of action in favor of subcontractors" and that neither the statutory text nor the legislative history supported the subcontractor's argument.

The result in EMTA underscores the importance of understanding the rights and remedies available for contractors and subcontractors on federal projects. Here, if the subcontractor had rested solely on the PPA to support its lawsuit, it may have been left with no recourse against the general contractor for nonpayment. In other contexts, understanding federal law may be even more important for preserving a subcontractor's rights. For example, subcontractors must comply with Miller Act requirements to preserve bond rights on federal projects. If a subcontractor encounters an insolvent general contractor, those bond rights may be the only security the subcontractor has available for nonpayment or other claims.

Doug Patin is a partner in Bradley's Construction Practice Group. His extensive government contracts and construction litigation practice has involved the entire spectrum of traditional government contract disputes, and he has experience in various aspects of government and construction contract law, including claims, appeals, bid protests, international arbitration, insurance coverage, federal fraud and False Claims Act issues.

Aman Kahlon is a partner in Bradley's Construction Practice Group. He represents owners, general contractors, and subcontractors in construction and government contracts matters. His litigation experience covers a wide variety of disputes, including substantial experience in power and energy matters, and he advises clients on delay, interference, defective design and negligence claims. 

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Tuesday, 13 April 2021

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