Colorado Payment Terms Overview
- Private Jobs
- Public Jobs
- Top Links
Pay When Paid Enforceable as Timing Clause
Colorado courts have held that a pay when paid clause creates a promise to pay, even if the money is never receved from above. Main Elec., Ltd. v. Printz Servs. Corp., 980 P.2d 522 (Colo. 1999)
Pay If Paid Valid
Colorado allows pay if paid clauses to be enforceable as a condition precedent to payment, and bar payment completely when payment not received from above, if the clear and unambiguous intent of the parties is for the particular clause to be a risk-shifting device.
Construction Trust Fund Statute Exists
Colorado’s trust fund requirements require all construction participants throughout the payment chain to hold their payments in trust for the downstream parties who are otherwise qualified to claim a lien against the property. The connection to lien rights means that if someone who would generally need to comply with the trust fund requirements believes in good faith that there is no valid lien right in favor of the downstream party, no trust fund obligations are created.
Colorado will impose personal liability on directors or officers who improperly divert funds subject to the trust fund requirements.
Retainage Unregulated
Colorado does not specifically regulate retainage on private projects. Accordingly, retainage is governed by the contract between the parties.
N/A
Colorado does not have prompt payment regulations related to private projects. The time for payment is set forth by contract.
Lien Waivers Not Regulated
In Colorado, lien waivers are not regulated by statute with respect either form, or procedure. In fact, Colorado allows lien rights to be waived prior to furnishing labor or material to the project. Accordingly, participants in Colorado need to be extremely careful with lien waivers.
Pay When Paid Valid
In Colorado, pay when paid provisions on public projects can be treated as pay if paid provisions and set receipt of payment from above as a specific condition precedent to payment, but only if they are very specifically clear. Unclear or ambiguous pay when paid provisions are treated as a timing mechanism and merely require payment to be made within a reasonable time.
Pay If Paid Valid if Explicit
Colorado allows pay if paid clauses to bar payment in the even payment is not received from above if the clear intent of the parties is for the clause to be a risk-shifting mechanism. This means that clause must have wording stating the parties’ intent that payment from above be a "condition precedent" and language that the risk of nonpayment is understood to be shifted to the subcontractor.
Construction Trust Fund Statute Exists (Probably)
Colorado’s trust fund requirements require all construction participants throughout the payment chain to hold their payments in trust for the downstream parties who are otherwise qualified to claim a lien against the property. It is unclear whether the connection to lien rights extends to a connection to bond claim rights, however. If it does not, the trust fund obligations likely do not apply to public projects.
Colorado will impose personal liability on directors or officers who improperly divert funds subject to the trust fund requirements.
Retainage Limited to 5%
Colorado limits retainage on public projects to 5% of the contract price, and requires that the retainage can be held by the public entity until the contract is completed and the project is accepted by the public entity. After contractors receive retained funds they must pay subs within 7 days.
Payment Due to Subs/Suppliers in 7 Days
On public projects in Colorado, payment must be made to subs and suppliers within 7 days of the receipt of payment from above. Payment to GCs is due by "the end of each calendar month or as soon thereafter as practicable"
Construction payment is highly regulated in Colorado, and it’s very important for construction participants to understand the rules and requirements surrounding the various aspects of construction payment and many Colorado payment terms in order to make sure that payment is smooth and timely.
Despite a lot of regulation surrounding construction payment terms in Colorado, there are still many places in which property developers, contractors, and suppliers can set specific terms, and modify Colorado’s general scheme through provisions contained in their construction contracts.
It’s very important for Colorado contractors and other participants on Colorado construction projects to carefully examine their contracts, because the time for payment, and even the right to payment, can be changed through contractual language. Colorado allows parties to set the time for payment on private projects without any guidance or structure from prompt pay statutes; it allows parties to waive lien rights through their contract prior to furnishing labor or materials to the project; it doesn’t regulate the amount of retainage that may be withheld or for how long; and it doesn’t regulate the form or procedure surrounding lien waivers. Accordingly, there are many places in which a construction contract can modify or impair a construction participant’s right to fair and timely payment.
While clauses like advance lien waivers, retainage, or general payment timing clauses may effect the protections available in the event of nonpayment, or time in which payment should be made, they don’t directly impact the requirement of payment itself. This is not the case for pay if paid provisions. Colorado allows parties to agree, through contract, that receipt of payment from above can be a condition precedent to payment down the chain. This can act as a complete bar to payment when. What makes this especially dangerous is that such clauses are very common to see in construction contracts (after all, these provisions are within the AIA standard documents).
There are a few more protections built into statutory law with respect to public projects in Colorado, since reliance is limited by statute, and prompt payment provisions generally apply.
There are some key laws that regulate the construction payment process in Colorado, which include:
- Lien Rights Laws
- Preliminary Notices
- Lien Waivers
- Mechanic Liens
- Bond Claims
- Retainage Laws
- Prompt Payment Laws
Despite Colorado’s strong policy of allowing freedom of contract to govern payment terms on private construction projects, there are some important protections built into statutory law that govern the treatment of construction funds prior to payment, and of which construction participants must be aware. Colorado’s construction trust fund statute, set forth by Colo. Rev. Stat. Ann. §38-22-127 et seq. is string and far-reaching. Construction trust fund statutes mandate that funds that are to be paid to construction participants for work on a project must be held in trust for the benefit of those parties. This protects against the misallocation of funds on projects, and provides significant penalties for those who do not abide by these requirements.
In Colorado, these trust fund requirements do not just apply to direct contractors. Instead, Colorado requires all contractors and subcontractors throughout the payment chain to hold their payments in trust for the downstream parties who are otherwise qualified to claim a lien against the property. It is an interesting quirk of Colorado’s laws that the trust fund requirements are related to lien rights. This appears to result in the situation where, if someone who would generally need to comply with the trust fund requirements believes in good faith that there is no valid lien right in favor of the downstream party, no trust fund obligations are created. This is not just a “company” obligation, however, Colorado will impose personal liability on directors or officers who improperly divert funds subject to the trust fund requirements.
It’s important for everyone on a construction project to treat one another fairly. But, when it comes to signing construction contracts in Colorado, and exchanging payment applications, and eventually, payment . . . it’s important to know the rules of the game. This page provides a resource to you to really understand those rules.
