Getting paid for your work, and getting paid on time, is crucial for work in every industry. In construction, late payment is an unfortunate fact of life. But it doesn’t have to be! First, payment issues are often nipped in the bud through proactive communication. Sending a prelim or a project awareness letter can help a ton in this regard.
But when it’s too late for a proactive approach, there are still tools to help speed up payments. In the state of Georgia, the Georgia Prompt Pay Act is available to help contractors, subs, and suppliers speed up their payments.
The Georgia Prompt Pay Act
The Georgia Prompt Pay Act establishes a required timeline for construction payments. Georgia law says that when a contractor performs work in accordance with the contract, the person in charge of payment must pay the contractor within 15 days of receiving an invoice for the work that was completed.
Payment to Subcontractors
When it comes to subcontractors, once the sub has done the work in a way that is satisfactory to the provisions of the contract, the contractor is required to pay that sub within 10 days of receiving payment. When that subcontractor has their own subs and suppliers, payment must be made to those parties within 10 days of the subcontractor’s receipt of payment.
Here’s a summarized timeline:
- The contractor must be paid within 15 days of their invoice.
- That contractor’s subs must be paid within 10 days of the contractor’s receipt of payment (maximum 25 days after the contractor’s invoice).
- That subcontractor’s subs and suppliers must be paid within 10 days of the subcontractor’s receipt of payment (maximum 35 days after the contractor’s invoice).
So, if everyone follows the rules, second-tier subs and suppliers will be paid a little over a month after the contractor invoices the owner for work performed.
Some Payments May Be Withheld
The payments can be withheld, but only if they fall under certain circumstances. The GA Prompt Pay Act breaks it down as follows:
- unsatisfactory job progress;
- defective construction which has not been remedied;
- disputed work;
- third-party claims filed or reasonable evidence that a claim will be filed;
- failure of the contractor or its subcontractor to make timely payments for labor, equipment, and materials;
- damage caused by the contractor to the owner, other contractors, or subcontractors;
- or reasonable evidence that the contract cannot be completed for the unpaid balance of the contract sum.
If one or more of the above conditions apply, payment for work may be withheld. Further, “reasonable amounts” of retainage may also be withheld – but retainage withheld by any party may not exceed the amount of retainage provided for in the prime contract for work.
Contractors and Subs Could Be Penalized for Late Payments
You’re probably thinking, “What happens when payments come late?“ I don’t blame you since late payments are the norm in construction. Here’s what the law says:
If payment isn’t made on time, and if one of the above reasons doesn’t apply, the owner, contractor, or sub who missed their payment deadline will be liable for interest payments. Starting on the day that the payment was due, 1% interest per month is added. But beware: if a partial payment is accepted by the party waiting to be paid, this will release any claim of interest.
How to Leverage the Georgia Prompt Pay Act to Speed Up Payment
Under the GA Prompt Pay Act, the interest penalty described above only applies if notice is given. That is, an unpaid party must notify the nonpaying party that interest is accruing due to the failure to pay. Once that notice is given, interest begins to accrue. So, a great place to start is to download a free template of a Notice of Interest Penalty and send it off immediately.
If Sending Notice Isn’t Enough
If sending notice isn’t enough to speed up payments, a claimant has a number of options. For one, sitting tight is an option. A claimant can certainly hold tight and hope that the situation gets better. Other, more proactive options may be to send a Notice of Intent to Lien or a demand letter.
Alternatively, a Notice of Intent to Make Prompt Payment Claim is also an option. Making an actual Prompt Payment Claim will typically entail a lawsuit. While a lawsuit is probably not ideal for anyone involved, the threat of a suit could certainly get things rolling. This is especially true when lien rights might not be available for some reason (such as failure to send notice or a missed lien deadline).