When a contractor has hired you to complete work on a project, it’s assumed you’ll be paid for the work you complete. But the savviest subcontractors prepare for the worst: the possibility of the contractor withholding payment. How long does a contractor have to pay a subcontractor, anyway? And, if the GC refuses to pay, what are your rights? Can any action be taken?
In this article, Northwest Lien takes an in-depth look at these questions and, more generally, sub-contractual agreements and state laws.
There are different kinds of construction projects for which a general contractor can hire subcontractors like plumbers, bricklayers, or electricians. Some of these projects are bound by written or oral contractual agreements, but, for any type of agreement, it’s expected that subcontractors will get paid for their jobs.
The question is, when and what are the deadlines for payments?
Usually, a subcontractor will only get paid once he completes the project. Other contracts stipulate that a subcontractor will only get paid once the contractor is paid.
Typically, most state laws require that contractors pay subcontractors within 7–14 days from the moment they receive payments from the property owners who have hired them. However, it should be mentioned that owners are accountable for paying their subcontractors whether or not the project they were hired to complete pays or delays.
It’s essential, therefore, for subcontractors to carefully read and understand the payment language of their contracts. A standard contract, written or oral, should contain the following basic elements:
A basic principle that should be captured in every contractual construction agreement is the payment terms. For construction projects, there are two popular formats used. These are the AIA (American Institute of Architects) contracts and the consensus contracts.
The AIA is the most common and stipulates that progress and final payments must be given within seven working days of the contractor receiving money from the owner. Consensus contracts are entered into when all parties involved have agreed to the terms and conditions of the contract. For this type of contract, the contractor is required to pay the subcontractor seven days after receiving payment.
Prompt payment laws dictate how fast payments for construction projects must be made. To make use of the laws, a subcontractor must know which category the project’s funding falls under, the location of the project (to determine which state law will apply), and the contract between the subcontractor and the general contractor on particular payment terms. The project’s funding can be federal, state, or private.
Payments to general contractors must be made within 14 days after the presentation of an invoice for federally supported projects; final payments for a project should be made within 30 days of submitting an invoice. Once these payments have been made to the contractor, they have seven days to pay the subcontractor.
For state-funded projects, it is generally required that contractors must pay subcontractors within 7-14 days once they obtain payment from the owner. But different state laws govern construction projects in the other states.
How long does a contractor have to pay a subcontractor in Washington state?
Prompt payments in Washington are governed by the Prompt Pay Act which provides a payment timeframe and penalty framework for all public work projects in the state.
For public projects, the deadline for payments to the contractor is usually determined by the terms and conditions of the contract. However, once an invoice has been submitted, payments must be made within 30 days. The only exception is if the project is funded by federal funds or grants and the money is yet to be received by the public contracting firm.
The interest charged as penalties for withheld payments is set at 1% or $1 per month. And if the matter goes to court, often by enforcing a mechanic’s lien, the winning party will be entitled to attorney fees as well.
Payments can be withheld if the work done is substandard or the payment request doesn’t meet the agreed terms under the contractual agreement. The withholding firm must notify the contractor about why they are withholding the payments within eight days of receiving the payment request. If the substandard work is rectified, payments should be made within 30 days.
Washington prompt payment requires that once paid, contractors must pay subcontractors within 10 days. If the contractor withholds payments due to poor work, he must inform the subcontractor why his payments are being withheld before the anticipated date of the payments.
The Washington Prompt Pay Act aims to protect general contractors in Washington state, as well as both suppliers and subcontractors, by enabling them to execute their rights to timely payments.
How long does a contractor have to pay a subcontractor in Oregon?
Progress payments for private projects must be paid by the owner within 14 days after receiving an invoice, and final payments must be completed within 7 days. The only exception is if the contract expressly states “Notice of Extended Provision”; if that’s the case, the subcontractor payments must be made within seven days after the contractor’s payment.
For prompt payments regarding private projects, the state provides for penalties like interest should delays occur. The interest rate usually starts at 1.5% per month or the rate agreed upon in the contract, whichever is greater. However, there are exceptions where payments can be legally withheld.
These exceptions include the following instances:
Private projects covered under Oregon law are projected to take 60 days or more to complete. The only exceptions are projects bound by the Low-Rise Residential Dwelling Code, dwelling and housing units kept explicitly for people with an income equal to or less than 90% of the Median houses as per the Housing and Community Services Department and public works contracts.
Oregon prompt payments for public projects require that the contractor be paid within 30 days by the owner for progress payments. And within 30 days for the final payments. Subcontractors are to be paid within ten days after the contractor has received payment. These rules apply to all public improvement contracts excluding contracts for minor modification, emergency work, and normal repair and maintenance mandatory for public improvement.
The only scenario where a contractor is allowed to withhold payments to subcontractors legally is when there is the pay-if-paid clause. This clause states that you aren’t bound to pay your subcontractors if you haven’t been paid yourself. Paid-when-paid clause provides that contractors will pay subcontractors after they get payment from the owner with a grace period of 7 days.
Now that we know the answer to the question, “How long does a contractor have to pay a subcontractor,” the big question that remains is what happens if the GC does not pay promptly.
The worst thing that can happen to a subcontractor is when they have worked hard on a project and the contractor fails to honor the end of their deal with payment. But it doesn’t have to end in despair or tragedy! If you are a subcontractor and you haven’t been paid, there are several options available to you ranging from filing for a lien, filing a lawsuit, or writing a demand letter. Read more in our guide to getting paid if a contractor is withholding payment by clicking below.
When you want to file a mechanic’s lien, you must consider your state because laws differ in each state. A demand letter simply informs the contractor that their payment is overdue and if they don’t get paid, action will be taken. To file for a lien, the subcontractor lets both the owner and the contractor of their payments and their intention to take action if they don’t get paid.
Filing a lawsuit is often used as a last resort because lawsuits don’t come cheap and take time. If you’re not sure where to start, contact your local team at Northwest Lien to determine what the best next steps for your unique situation are. We’re the regional lien experts, and we’d love to hear from you!