Michigan Construction Contracts Guide & FAQs

No, lien rights can to be waived by contract in Michigan. These so-called “no-lien clauses” are strictly prohibited under Michigan’s lien laws as against public policy. Specifically under Mich. Comp. Laws §570.1115(1):

A person shall not require, as part of any contract for an improvement, that the right to a construction lien be waived in advance of work performed. A waiver obtained as part of a contract for an improvement is contrary to public policy, and shall be invalid , except to the extent that payment for labor and material furnished was actually made to the person giving the waiver.

No, Michigan does not require the existence of a written contract in order to have lien rights. Michigan’s lien laws define the term contract as “a contract, of whatever nature, for the providing of improvements to real property…” (emphasis added)

Note, however, that if the contract involves a residential structure (individual condo unit, or a building with 2 or fewer residential units) the contract must be in writing for the contractor to have lien rights.

• Learn more: Can a Contractor File a Mechanics Lien Without a Written Contract?

Both pay-if-paid clauses and pay-when-paid clauses are enforceable in Michigan. The state has held that it is not against public policy to permit parties to set payment terms, including requiring payment from a third party as a condition precedent to payment.

Pay-if-paid clauses

In order to have an enforceable pay-if-paid clause in Michigan, the court will look to the language of the contract to determine if the clause clearly and unambiguously expresses the intent to make receipt of payments as a condition precedent to payments to the subcontractor. –Berkel Co. v. Christman Co.

The applicability of such clauses has been limited by the Michigan Courts to only cover work performed under the contract. In that case, the court held that unsigned change orders would not be subject to an enforceable pay-if-paid clause as the work wasn’t covered under the scope of the contract.

• Dive deeper: Michigan Court LImits Applicability of Pay-if-Paid Clauses

Pay-when-paid clauses

A pay-when-paid clause is also enforceable under Michigan law. However, such clauses (and ambiguously worded pay-if-paid clauses) have been interpreted to set a reasonable time for payment to be made to a subcontractor. If the contractor does not receive payment from the owner, the underlying obligation to pay a subcontractor remains intact.

No-damages-for-delay clauses are generally valid and enforceable in Michigan. However, they are strictly construed against the property owner.

Additionally, there are some exceptions to the enforceability of such provisions set out by case law; this includes when the delay:

• Was of a kind not contemplated by the parties;
• Amounted to an abandonment of the contract;
• Was caused by bad faith on the part of the contracting authority; or
• Caused by the active interference of the other contracting party.

Private projects

Michigan does not have any prompt payment laws that regulate the timing of payments on private construction projects. Therefore, the timing of payments and penalties for late payment will be governed by the terms of the contract between the parties.

Public projects

As far as prompt payment laws for public projects in Michigan are concerned, (projects over $30K that provide for at least four payments) only regulate the timing of payments from the public entity to the prime contractor; which must be made within 30 days of the approval of the payment request, or 15 days of receipt of funds if from a state or federal agency; whichever is later.

All other payments down the contracting chain will be subject to the terms of the contract between the parties. Similarly, the interest penalty for late payments will be governed by the terms of the contract, as the statutes merely allow a “reasonable interest rate.”

• See: How much interest is “reasonable” under Michigan’s prompt payment law?

On any other public works project that doesn’t provide for at least 4 progress payments, the timing of payments and interest penalties will all be subject to the agreement between the contracting parties.

Private projects

The state of Michigan does not regulate the retainage practices on private construction projects. Thus, the amount of retainage to be withheld, and the timing of the release of retained funds will be determined by the terms of the contract.

Public projects

On public construction projects in Michigan, the amount of retainage that can be withheld is capped at no more than 10% of each progress payment. Upon 50% completion of the project, if satisfactory progress is being made, no more retainage may be withheld. The release of which must be done with final payment; 30 days after the project is certified as complete, or 15 days after the contracting party received state or federal funds (whichever is later).

However, upon 95% completion, retainage may be released early if the contractor provides a letter of credit, and the parties agree to the terms.

Michigan law only sets out requirements for residential construction contracts; which can vary depending on the type of contract.

Generally, a residential construction contract (i.e. involves an individual condo unit or a building with 2 or fewer residential units) must be in writing and include the Michigan contractor’s license number (if required) and a statement citing the licensing requirements for residential builders/maintenance/alteration contractors, electricians, plumbers, and mechanical contractors. -See MCL §570.1114

There are additional requirements if the project concerns a Home Improvement Installation Contract; which includes any residential construction contract valued at over $300, where the owner agrees to pay in installments. In addition to the requirements set forth above, the contract must be dated, in writing, and in at least 8 pt font. The contract must also include a Notice to Buyer in bold type that reads as follows:

(1) Do not sign this contract before you read it.
(2) You are entitled to a completely filled-in copy of this contract.
(3) Under the law, you have the right to pay off in advance the full amount due and, under certain conditions, to obtain a partial refund of the finance charge.
(4) You may rescind or cancel this contract, not later than 5 p.m. on the business day following the date thereof by giving written notice of rescission to the contractor or his agent at his place of business given in the contract or by mailing the notice or cancellation to the contractor to his place of business given in the contract by depositing a properly addressed certified letter in a United States post office or mailbox, but if you rescind after 5 p.m. on the business day following, you are still entitled to offer defenses in mitigation of damages and to pursue any rights of action or defenses that arise out of the transaction

Lastly, there are other required pieces of information such as a total contract price, the amount of downpayment required, description of goods and services to be provided, and a number of other pieces of information. A full list can be found under MCL §445.1203.

The statute of limitations (deadline) to file a breach of contract claim for nonpayment is 6 years from the date of the breach; regardless of whether the contract was oral or written under MCL §600.5807(8).