Topic:
CONSTRUCTION INDUSTRIES; CONTRACTORS; CONTRACTS; WAGES;
Location:
CONSTRUCTION CONTRACTS; WAGES;

OLR Research Report


September 30, 2008

 

2008-R-0519

ASSISTING SUBCONTRACTORS OBTAIN PROMPT PAYMENTS FROM GENERAL CONTRACTORS

By: Sandra Norman-Eady, Chief Attorney

You asked if Connecticut and its neighboring states have programs designed to help subcontractors working on private commercial construction projects obtain prompt payments from general contractors.

SUMMARY

We are unaware of any such “program;” however, at least 30 states, including Connecticut, have prompt-payment laws that set out a schedule within which owners must pay prime or general contractors and these contractors must in turn pay subcontractors. These laws also include remedies for contractors and subcontractors who are not paid according to the schedule. The remedies include interest on the amount owed, beginning on the date payment was due and for those contractors and subcontractor who are successful in civil actions for payment, attorneys' fees. Some states (e.g., Connecticut, Kentucky, Louisiana, and Maryland) limit awards of attorneys' fees to cases where the non-paying party acted in bad faith. Generally, these laws apply even when construction contracts do not specify a payment schedule.

PROMPT-PAYMENT LAWS BY STATE

The American Subcontractors Association Inc. (ASA), a membership trade organization that has represented subcontractors and suppliers since 1966, ranks states on their prompt payment policies, focusing on the timing of payments to prime and subcontractors and the legal mechanisms in place to enforce prompt payment. After reviewing state policies pertaining to public and private work, ASA assigned each state a letter grade (from “A” to “F”) based on a scoring scale of 0 to 100. For 2007, Connecticut was ranked 29th among the 50 states and received the worse letter grade, an “F.” Maine and Vermont were the only New England states ranked higher at 4th and 17th place, respectively. For more information on ASA, visit its website at www.asaonline.com.

ASA's report does not explain why states received their particular ranking or letter grade but a comparison of the law in the state that received the highest ranking (Kansas) and Connecticut reveals that Kansas' law: (1) has broader application, applying to contracts valued at $25,000 and less whereas Connecticut's law does not; (2) specifies more illegal contract provisions than Connecticut (e.g., contracts cannot require subcontractors to waive their rights to (a) litigate disputes, (b) statutory protections, or (c) subrogate their claims or losses); (3) imposes 18% versus 1% interest on payments that are not timely; (4) requires courts and arbitrators to award costs and attorneys' fees to prevailing parties whereas Connecticut allows attorneys fees only upon a finding that payment was unreasonably withheld.

Table 1 shows states with prompt-payment laws in private commercial construction, the schedule for making these payments, interest rates on payments unpaid by the due date, and any penalties or fees that may or must be imposed on the defaulting party.

Table 1: 2007 Prompt-Payment Laws by State

States

Payments due from Owners to Prime Contractors

Payments due from Prime to Subcontractors

Interest/ Fees

Alabama

Ala. Code 8-29-1 to 8-29-4

30 days after invoice unless otherwise agreed.

7 days after payment unless otherwise agreed.

1% per month; attorneys' fees to “party in whose favor a judgment is rendered”

Arizona

Ariz. Rev. Stat. 32-1129 to 32-1129.06.

7 days after approval of invoice unless otherwise provided in bid plans and specifications.

7 days after payment.

1.5% per month; attorneys' fees to “successful party.”

California

Cal. Bus. & Prof. Code 7108.5; Cal. Civil Code 3260-3260.1.

30 days after invoice.

10 days after payment unless otherwise agreed. Final payment 45 days after project completion.

2% per month; attorneys' fees to “prevailing party”.

Connecticut

CGS 42-158i to 42-158j.

30 days after invoice.

30 days after payment.

1% per month; attorneys' fees only upon finding payment unreasonably withheld.

Delaware

Del. Code 6-3501-09

Within 30 days after invoice or “end of the billing period”.

15 days after payment unless otherwise agreed.

Interest required but rate not specified; attorneys' fees to “substantially prevailing party” unless agreed otherwise.

Florida

FSA 713.346 and 715.12

Per contract; final payment within 14 days after completion.

Per contract

Interest at judgment rate; attorneys' fees for prevailing party in payment disputes between contractors and subcontractors.

Georgia

Ga. Code 13-11-1 to 13-11-11

15 days after invoice

10 days after payment

Interest at 1% per month unless otherwise agreed; attorneys' fees to prevailing party.

Hawaii

HRS 444-1 and 444-25

No provision.

60 days after invoice, but may be contingent on receipt of funds held in escrow or trust if disclosed on bid solicitation.

Interest at 1% per month; no fee provision.

Illinois

Ill. Compiled Stat. HB 743 (2007), Public Act 95-0567

40 days after invoice (25 days to approve + 15 to pay).

15 days after payment.

Interest at 10% per annum; no fee provision.

Kansas

KSA 16-1801 to 16-1807

30 days after invoice for progress payments; final payment per contract.

7 business days after payment.

Interest at 18% per year; fees to prevailing party.

Kentucky*

KRS chapter 371, Kentucky Fairness in Construction Act HB 490 (2007)

30 business days after invoice for progress payments; contractor must give notice of nonpayment after 25 business days; 45 business days for progress payments by schools; final payment 30 days after substantial completion.

15 business days after payment.

Interest at 12% per year; fees only if losing party “acted in bad faith.”

Louisiana

LRS 9:2784

No provision.

14 days after payment.

Penalty of 1.5% per day up to 15% maximum; attorneys' fees for collection, and fees for defending against claim “without merit.”

Maine*

Me. Rev. Stat., Title 10, 1111 et seq. (excludes highway); cf. Title 5, 1551 et seq. (prompt payment by government in general).

Progress payments 20 days after invoice or end of billing period, whichever is later unless otherwise agreed; final payment 30 days after “final acceptance.”

7 days after payment or invoice, whichever is later; payment of contractor-held retainage (only permitted when owner is not holding retainage) 30 days after “final acceptance.”

Interest at statutory rate plus 1% penalty; attorneys' fees to “substantially prevailing party.”

Maryland

Md. Code, Real Property, 9-301 to 9-304.

Progress payments as agreed; final payment 30 days after completion unless otherwise agreed.

7 days after payment

Interest at the legal rate; attorneys' fees only if losing party acted in “bad faith.”

Minnesota

MSA 337.10

No provision.

10 days after payment.

Interest at 1.5% per month; attorneys' fees to prevailing party that asks.

Mississippi

Miss. Code. 87-7-3, 87-7-5.

Progress payments as agreed; final payment 30 days after substantial completion.

15 days after payment.

Interest at 1% per month for prime plus penalties of up to 15%; no fee provision.

Missouri

Rev. Mo. Stat. 431.180.

As agreed.

As agreed.

Court may award up to 1.5% interest per month and attorneys' fees to prevailing party.

Montana

Mont. Code 28-2-2101 to 28-2-2117

“Monthly” unless alternate disclosed in the bid documents; invoices deemed approved after 21 days unless alternate disclosed in bid documents; payment due 7 days after approval unless alternate disclosed in the bid documents.

7 days after payment.

Interest only if late payments are refused at 1.5% per month; attorneys fees' to prevailing party in court and may be awarded in arbitration.

Nevada

Nev. Rev. Stat. 624.606 to 624.630.

21 days after invoice or as otherwise agreed for progress payments; 30 days after availability of improvement for intended use for final payment.

10 days after payment.

Interest at statutory prime rate or agreed rate, whichever is higher; attorneys' fees may be awarded to prevailing party if statutory right to suspend and to terminate is exercised.

New Jersey*

SB 1726 N.J. Stat. 2A:30A-1, 30A-2; 40A:11-16.2 and 52:32-40 and 52:32-41.

30 days after billing date specified in contract (for localities, must be monthly); however, public entities get extension to billing cycle after “next scheduled public meeting.”

10 days after payment unless otherwise agreed.

Interest at prime plus 1% (some highway projects excluded); attorneys' fees to prevailing party.

New Mexico*

N.M. Stat., 57-28-1 to 57-28-11.

Progress payments: 21 days after invoice, or 45 days for local public bodies who print notice on each page of the bid plans. Final payment: 10 days after certification of completion upon presentment of required documents.

7 days after payment.

Interest at 1.5% per month; court may award attorneys' fees.

New York

N.Y. Gen. Bus. Law 756 et seq.

Progress payments: monthly billing cycle unless otherwise agreed; 42 days to pay (12 days to approve invoice plus 30 days to pay) unless otherwise agreed; owner gets time extension if lender fails to disburse loan and lender is legally required to do so. Final payment: 30 days after “final approval” for final payment.

7 days after payment.

1.5% per month; no fee provision.

North Carolina

N.C. Gen. Stat. 22C-1 to 22C-6.

No provision.

7 days after payment.

Interest at 1% per month; no fee provision.

Ohio

Ohio Rev. Code 4113.6.

No provision.

10 days after payment.

Interest at 18% per year; attorneys' fees to prevailing party.

Pennsylvania

73 Uncon. Penn. Stat. 501-516.

20 days after invoice unless otherwise agreed for progress payments; 30 days after final acceptance for final payment.

14 days after payment.

1% per month unless otherwise agreed; additional penalty of 1% per month for amounts “wrongfully withheld”; fees to substantially prevailing party.

South Carolina*

S.C. Code 29-6-10 et seq.

21 days after invoice.

7 days after payment.

Interest at 1% per month if warning and statutory cite are on invoice; rate may vary if statutory rights are specifically waived; no fee provision.

Tennessee

Tenn. Code 66-34-101 to 66-34-703 HB 3068

Progress payments: 30 days after invoice submitted in accordance with contract schedule. Final payment: after substantial completion per contract.

30 days after invoice submitted in accordance with contract schedule, subject to any pay-if-paid clause.

Interest at statutory rate unless otherwise agreed; fees may be awarded if losing party acted in bad faith.

Texas

Tex. Prop. Code 28.001 to 28.010.

35 days after invoice.

7 days after payment.

Interest at 1.5% per month; court may award attorneys' fees.

Utah

Utah Code 13-8-5, 58-55-603.

No provision for progress payments; final payment 45 days after later of invoice or certificate of occupancy.

Progress and final payments due within 30 and 20 days, respectively, after payment.

Interest at 1% per month; fees to prevailing party in suit for retainage.

Vermont*

Vt. Stat., Title 9, 4001-4009, Title 12, 2903.

Progress payments 20 days after invoice submitted in accordance with contract schedule; final payment 30 days after final completion.

7 days after payment.

Interest at statutory rate; attorneys'fees to prevailing party plus penalty of 1.5% per month for amounts “wrongfully withheld.”

Source: American Subcontractors Association, Inc.

*Applies to both public and private construction

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