The federal Prompt Payment Act affects anyone in the construction industry working on government projects, from general contractors, to subcontractors at all levels, to the materials suppliers. Most states have similar versions of the act that apply to public and private projects. These acts are vital pieces of the puzzle when working on construction projects for a number of reasons. Here are 3 of the most important reasons to consider.
Prompt Payment Acts Make General Contractors and Project Owners Accountable for the Payment Timeline
Without the Prompt Payment Act, payment would be owed as set by the contract between the general contractor and the subcontractors. However, prompt payment acts set absolute maximums for the time the general contractor can take to pay others. In federal acts, the government is required to pay small business contractors within 15 days of receiving an invoice, so that they, in turn, can promptly pay subcontractors.
The federal act requires the general contractor to pay a subcontractor within seven (7) days after receiving payment from the government once their part of the project has been completed satisfactorily. Many states also have prompt payment laws with specific timelines- what is considered prompt varies from state to state, but in many cases, requires the general contractor to be paid within 30 days of an invoice and subcontractors to be paid within one to two weeks.
Prompt Payment Acts Define “Satisfactory Completion”: If They Don’t Pay- They Must Tell You Why- and Give You a Chance to Fix It.
All prompt payment rules hinge on the work being completed in a ‘satisfactory manner’. If a general contractor is going to withhold payment, they must give notice to the subcontractor as soon as possible and prior to the date the payment would be due. The notice must list the amounts and reasons for withholding and give the subcontractor actions they can take to remedy the situation and receive payment.
Prompt Payment Acts Are Powerful Legal Tools in Your Arsenal, That Help You Get Paid
While it may take a while for payment to make its way from the owner of the project to a lower-tier contractor, prompt payment laws do provide a clear timeframe for when payment is expected. As an incentive to get you paid on time, both state and federal laws provide for interest on late payments. Coupled with the ability to file mechanics liens when payment is overdue (again, the timeline varies by state) contractors and subcontractors have a powerful set of legal tools to ensure they are paid for work performed and materials supplied.
Federal and state level prompt payment acts are just one part of the construction law puzzle, but an important one for ensuring timely payments, especially when working on public projects. For help understanding how the laws apply to your specific situation, reach out to the experienced team at National Lien & Bond. Our attorneys are focused on helping you protect your interests during all points of a project, so reach out today and set up a free consultation with a member of our team.
This blog is for educational purposes only and not intended for legal advice. This article has been updated on Dec. 19, 2018. An earlier version has been published Jan. 5, 2018