Payment in the construction industry is notoriously slow. This is why most states have enacted prompt payment laws to protect contractors by providing statutory deadlines for payment and interest penalties for late payments. In Ohio has prompt payment laws that govern both private and public projects.
However, on private projects, there is no protection for general contractors — but this could change soon as HB68 passes through the state legislature.
Ohio prompt payment for private projects
Currently, the Ohio Prompt Payment provisions for private construction projects regulate the timing of payments to subcontractors and suppliers. Under these requirements, a subcontractor must be paid within 10 days of the date the general contractor received payment from the owner. This same timeframe applies to all other down-chain payments as well. Any payments made outside this timeframe will accrue interest at a rate of 18% per year.
However, the timing for an owner to pay the general contractor is noticeably absent under these statutes.
Prompt payment reform for general contractors has actually been in the works for quite some time in Ohio. A similar bill was proposed back in 2019 to add GC under the protection of Ohio’s prompt pay laws, but that bill died in committee. Flash forward to 2021, and prompt payment protection for GCs is making its way through the state legislature.
Ohio HB68 would expand prompt payment protection to general contractors
Under this proposed legislation, the timing of payments to general contractors would be added to Ohio Rev. Code §4113.61. These prompt pay laws apply to most private projects, with the exception of single, two, or three-family detached dwellings. So let’s take a look at what this bill could look like if and when the legislation reaches Governor Mike DeWine’s desk.
Bill overview:
- Title: Ohio House Bill 68: Require private construction project owner to timely pay
- Prime Sponsors: Rep. Jon Cross & Rep. Bride Rose Sweeney
- Date Introduced: February 4, 2021
Timing of payments to general contractors
If enacted, payments to general contractors on private projects must be made within 30 days. But within 30 days of what? It’ll depend on the type of project.
For most private projects, the 30-day payment period is triggered by the owner’s receipt of a payment request.
However, if the project requires both (a) approval of plans by a municipal, township, or county building department, or by the Superintendent of Industrial Compliance under ORC §3791, and (b) a seal of compliance by a registered architect or engineer, then the 30-day clock starts to tick from either the date the work is certified by an architect/engineer, or after the owner receives the payment request — whichever is later.
Remedies and penalties for late payment
The rate of interest for late payments to general contractors would be the same as all other late payments on private projects: 18% per year. This interest will begin to accrue on the 31st day after the owner receives a request for payment.
Finally, if payment is more than 30 days late, the general contractor will have the right to file a civil action to recover the amount due, plus interest. And the prevailing party will be entitled to reasonable attorney fees and court costs as well — unless the court determines that the award of attorney fees would be “inequitable.”
Impact of these proposed changes
The passage of this bill would be a huge win for contractors and subcontractors alike. General contractors would have clearly defined deadlines for payment and entitlement to interest penalties.
We reached out to Rep. Bride Rose Sweeney, one of the prime sponsors of the bill, and this is what she had to say:
House Bill 68 is about having a fair and even playing field for hardworking Ohio contractors, many of whom have to wait anywhere from 60-100 days to be paid after completing a construction project. In what other industry can folks delay prompt payment for work completed without consequences? Working people shouldn’t have to dip into personal or even retirement funds just to do their job. This legislation closes a glaring loophole in the state’s payment schedules and brings the ORC in line with a reasonable and widely-accepted 30 day standard. While many project owners do pay promptly, House Bill 68 weeds out bad actors.
As of time of reporting, HB68 has been passed by the Ohio House of Representatives and has been introduced into the Senate. We will monitor the progress of this bill, and let you know of any updates or changes.