With a state court ruling in June, there's more clarity now and the law can't be ignored—so the days of simply ghosting a payment request in Massachusetts are over.

Yet the full picture of how the court ruling came about has in some ways been overlooked at the expense of Graycor Inc., the Illinois-based prime contractor that failed to approve or reject payments sought by a subcontractor. 

The company, which ranks at No. 201 on the ENR Top 400 Contractors list, isn't the pay scoundrel it may seem to be, based on some tersely written accounts of the court decision in Business Interiors Floor Covering Business Trust v. Graycor et al. 

The ruling by a Massachusetts Supreme Judicial Court panel, which came in Graycor's appeal of a lower court verdict in favor of subcontractor Business Interiors, put sharper teeth in the prompt-pay law. It means that unless an owner or prime contractor explains why it is denying an application for pay, the firm will not be allowed to explain itself in a later court proceeding without first making that payment.

State construction attorneys recognized the decision's significance, and some of their legal interpretations are technically accurate and, in the instance of one published by ENR.com, limited in length.

My point is that they simply didn't say enough about the context of the project.

Bradley L. Croft of law firm RIW notes that Graycor, in its appeal, argued that the common law defense of impossibility should bar the subcontractor’s claim. Why? Because the owner’s inability to make payment to the general contractor was due to the COVID-19 pandemic, the firm said, which "meant that the funds for the subcontractor’s work were unavailable to the general contractor."

That commentary hints that the pandemic had something to do with what happened in this case. 

In another example, my erudite friends at law firm PretiFlaherty wrote a cogent analysis that described Graycor's role as "general contractor for a movie theater project in Boston’s North End." That provides more context but not enough.
Joseph A. Barra of Robinson & Cole, writing for ENR, mentions that the Business Interiors case emerged from "certain flooring work for a movie theater project in Boston."

I'll give you the rest of what I think is relevant.

In 2018, Graycor had signed a roughly $19-million contract with movie theater chain Pacific Theatres Exhibition Corp. to build a theater to be known as ARCLight Boston Garden. Pacific Theatres was to be the tenant of the building's developers. Graycor hired Business Interiors to provide flooring and, with change orders, the subcontractor's total work came to $608,000. As the COVID-19 pandemic entered its jarring early weeks in March 2020, Business Interiors applied for its 19th payment, for $75,745, but Graycor provided no written explanation for not paying.

In January, Graycor's project manager traveled to Pacific Theatre's California headquarters to attempt to resolve issues related to the roughly $3 million in change orders it still had pending on the project, but by March the chain had shut its theater doors, Boston Mayor Martin Walsh had banned construction in the city and the money Pacific Theatres hoped would pay for the project stopped flowing in.

Graycor Relied on Its Contract

Business Interiors was one of several subcontractors that sued Graycor and the owner companies, alleging breach of contract among other things. To defend itself from that lawsuit, Graycor relied on its contract with Business Interiors and the contract's standard pay-if-paid clause, claiming essentially that the impossible circumstances imposed by the pandemic prevented it from paying. 

In one motion, Graycor attorneys argued: "No one anticipated that there would be a global pandemic with the result that Pacific would stop approving change orders, stop issue payments, close all its theaters and that the leasehold interest in the project would be terminated or that Pacific would declare bankruptcy."

Graycor, which opened an office in Boston in 2019, declined to comment to me about the matter as its various project lawsuits drag on. I'm glad that subcontractors, as well as prime contractors, are being better protected by the Massachusetts law. If it wasn't clear before, owners and prime contractors can't withhold legitimate payment requests and just say nothing.

I only wish to point out that Graycor itself was also a pay victim on the project, and that the mess over the Boston theater project payments was not the result of an arbitrary whim by the prime contractor or even because it thought Business Interiors did not do its work.