Pennsylvania Law Monitor : Pennsylvania Lawyer & Attorney : Stark & Stark Law Firm : Yardley, Philadelphia, New York, New Jersey

The Internal Revenue Service announced in late October that the annual gift tax exclusion for 2010 will be $13,000, the same as in 2009. The annual exclusion allows every individual to give $13,000 to each family member or other beneficiary without any transfer tax implications. If only one spouse makes a gift to an individual, the donor and his or her spouse can elect to treat a gift to an individual as though each spouse made one-half of the gift to the individual, effectively allowing a married individual to double the benefit of the annual exclusion to $26,000 if the non-donor spouse makes no annual exclusion gifts to the done in the same calendar year.

Given the above, the potential estate tax savings offered by the annual gift tax exclusion can be substantial. For example, suppose a mother and father with a large estate have two married children and four grandchildren. Mother and father could transfer $26,000 to each child and grandchild ($156,000 annually) without gift taxes. After five years, the gifting will have reduced mother and father’s combined estate by $780,000. 
 
 

• Email This
• Print
• Share Link

Before the 1998 Commonwealth Procurement Code, the Administrative Code governed the process of contracting with the Commonwealth or an agency of the Commonwealth.  The Procurement Code governs any transaction in which the Commonwealth purchases goods and services or expends funds, except when the Commonwealth is making grants or investments. 

Of particular importance is the Procurement Code’s applicability to construction contracts exceeding $500,000.00 between private contractors and the Commonwealth and its agencies or subdivisions.  Displacing a patchwork of prior law, the Procurement Code was enacted to streamline the purchasing/contracting process and to provide a “uniform and mandatory” system for the administration of public contracts in the Commonwealth. 

The Code defines “construction” as “[t]he process of building, altering, repairing, improving or demolishing any public structure or building or other public improvements of any kind to any public real property.”  Importantly, “construction” for the purposes of the Procurement Code does not include routine operation or maintenance of existing structures.  Note also that the Procurement Code applies to lower-tier contracts between prime Contractors and Subcontractors where the party in place of the owner is the Commonwealth or Commonwealth agency.

In sum, the Procurement Code entitles a Contractor which performs in conformity with the contract to payment from the Commonwealth, Commonwealth agency, or subdivision.  The Procurement Code proceeds to provide an aggrieved contractor with a means to effectuate proper payment, and to set payment deadlines if the contract between the parties is silent as to this term.  The “teeth” of the Procurement Code, and what most often piques private Contrators’ interest, are the provisions of the Code which provide a remedy of interest, penalties, and attorneys’ fees in favor of a Contractor where the Commonwealth has withheld payment in bad faith after payment has become due.   In the aggregate, an award of a penalty, interest, and attorneys’ fees can greatly reduce the harsh negotiating tactics employed in other contexts with private owners, or where the prime Contractor has been fully paid but leverages such a position to the disadvantage of Subcontractors.

• Email This
• Print
• Share Link

The Miller Act was enacted by Congress to provide a payment remedy to Subcontractors and suppliers who provide subcontracting work and materials on federal projects.   Under the Miller Act, a prime contractor must post a payment bond in an amount equal to the total amount payable under the prime contract, securing payment for the prime contractor’s first and second tier subcontractors and material suppliers by entitling them to make a claim against the bond in the event that the prime contractor fails to pay.  

To succeed in making a claim against a posted payment bond under the act, a first or second tier subcontractor or material supplier must first file a written notice with the prime contractor within ninety (90) days of the date that the claimant last performed work or provided materials it reasonably believed would be used on the project.  The notice must also contain the amount that is claimed to be due, and the name of the party with whom the subcontractor contracted and to whom the subcontractor furnished labor and materials.  Of supreme importance is the method of delivery of this notice – it must be delivered to the prime contractor by a means that yields a written record of delivery by a third party.  This would include service through the United States Post Office by Certified Mail with Return Receipt, use of a carrier such as Federal Express or DHL with restricted delivery confirmation, or by use of the services of a commercial process service outfit usually employed by attorneys to make service of civil process or subpoenas in many jurisdictions. 

If the claimant is then not paid by the prime contractor after this notice is sent, the claimant must bring a claim in Federal District Court within one year of the date of last work or forever lose the right to bring a claim against the payment bond.   In order to be successful, the claimant must then establish that it is a first or second tier subcontractor or material supplier, and that it provided labor or materials in furtherance of the federal project or with a reasonable, good faith belief that the materials furnished were to be used on the federal project.  If the claimant is able to support its claim and prevail, the claimant will be entitled to payment in the amount of the contract price with extra work, or the reasonable value of the labor and materials furnished, together with interest at the rate provided for similar claims in the State in which the project  is located.  The Circuit Courts of Appeals have come down with differing rulings regarding whether attorneys fees may be recovered, however the Third Circuit in interpreting Pennsylvania contracting law has found that attorney’s fees are generally not recoverable in cases under the Miller Act.

• Email This
• Print
• Share Link