Changes to the Prompt Pay Law were enacted in 2010 and apply to any construction contract where the initial distribution of plans by an Owner to a Contractor or Subcontractor (including bid plans and construction plans, specifications or contract documents) occurs on or after January 1, 2011.
The Prompt Pay Statute was enacted to ensure that Owners pay Contractors and Subcontractor periodically over the course of a construction project for work that has been satisfactorily completed.
How does it work? The Contractor submits payment applications every 30 days. The Owner then has 14-days to issue a written statement detailing specific items that are not approved and certified. If he fails to issue a written objection within that time period, the invoice is automatically deemed certified and approved as a matter of law. If any “reasons” exist, an Owner may only withhold an amount from the invoice that is “sufficient to pay the direct expense the Owner reasonably expects to incur” from the unapproved items or invoices. Once the invoice is certified and approved, the General Contractor is required to pay the Sub Contractors within 7 days.
You, as a General Contractor, may suspend performance or terminate the construction contract for late payments by giving the Owner written notice at least 7 calendar days before the Contractor’s intended suspension or termination. If suspension occurs, the General Contractor is not required to furnish labor, materials, or services until the Owner makes payments, which may include additional costs incurred for “mobilization” resulting from shutdown and start-up.
It is in your best interests to become familiar with these changes to the statute to ensure that all construction and supply contracts comply.