Construction Law | Residential | Commercial | Home Improvement | Contractor Sub Payment Act | Mechanic’s Liens

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The Contractor Subcontractor Payment Act imposes the following:

1. A deadline to pay an invoice (20 days) if the  deadline is not stated;

2. In the case of a subcontractor, payment is due to  the sub fourteen (14) days after the contractor’s  receipt of each progress or final payment or fourteen  (14) days after receiving the subcontractor’s invoice,  whichever is later.

3. The owner shall pay the contractor interest at the  rate of one percent (1%) per month beginning on the  eighth day after payment is due. Section 505(d).
The above duty to pay interest also applies to  subcontractors. Section 507(d)

4. Twelve percent (12%) per year is significant in that  it is double the usual legal rate of six percent available  on other contract claims.

5. Further, courts do not award attorney fees unless  the contract allows for it. Thus, prior to the Act, the  breaching Defendant responsible for litigation might  let it go on indefinitely while enjoying a low interest  (6% ) loan for the duration of litigation.

6. Now, if the unpaid contractor or sub must file suit  to recover payment due, and if the court or  arbitration panel determines that the owner or  contractor has failed to comply with the payment  terms of the Act, the arbitrator or court shall award,  in addition to other damages due, a penalty equal to  one percent (1%) per month of the amount wrongfully  withheld. See Section 512.

In essence, if a contractor or sub must endure  litigation to recover some or all of the amount owed,  the combined total of interest and penalties can  amount to as much as twenty-four percent (24%) per  year.

In addition to twenty-four percent (24%) interest and  penalties, Section 512 also permits a court or  arbitration panel to award reasonable attorney’s fees  to “the substantially prevailing party” in any  proceeding to recover any payment due under the  Act.

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