Connecticut Payment Terms Overview
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Pay When Paid Enforceable as Pay If Paid If Explicit
Connecticut allows language that a contractor will be paid at the time payment is received from above to bar payment entirely if payment from above is never received. Star Contracting Corp. v. Manway Constr. Co., 337 A.2d 669 (Conn. 1973). However, the wording must be explicit and unambiguous.
Pay If Paid Enforceable
In Connecticut, pay if paid clauses are enforceable if clear and unambiguous, but such clauses are disfavored and require much specificity. In order to be enforceable, it is required that the subcontractor explicitly assume risk of owners insolvency, and accept the risk-shfting.
No Trust Fund Statute
Connecticut does not have a construction trust fund statute that governs the treatment of construction funds prior to payment.
Retainage Limited to 5%
Connecticut limits retainage to 5% of the estimated amount of payment. Additionally, retainage must be held in an escrow account.
Owners must pay retained funds within 30 days of request, and contractors must pay within 30 days of receipt of funds from above.
Payment Due to Subs/Suppliers in 30 Days
For Subs & Suppliers, payment is required to be made within 30 days after receipt of payment from above. Payment to GCs is required within 30 days from receipt of written request for payment.
Lien Waiver Form Not Regulated
The specific form for lien waivers is not regulated by Connecticut, so project participants can use any form template and language they want. Construction participants should be careful when signing lien waivers to make sure they are not overreaching.
Lien rights can be waived prior to payment, but cannot be waived prior to work.
Pay When Pay Valid to Certain Extent
Pay when paid clauses in Connecticut are likely enforceable as a timing mechanism, but nothing in case law can be found to support holding payment longer than the time by which payment must be made pursuant to prompt pay statutes.
Pay If Paid Validity Uncertain
It is unclear how pay if paid clauses are interpreted on Connecticut public projects.
No Trust Fund Statute
Connecticut does not have a construction trust fund statute that governs the treatment of construction funds prior to payment.
Retainage Depends on Public Entity
Retianage in Connecticut depends on the identity of the contracting public entity. Department of Works or State Agency projects have a maximum retainage rate of 10%. Department of Transportation projects have a maximum retainage rate of 2.5%. Municipal contracts have a maximum retainage rate of 5%.
Payment Due to Subs/Suppliers in 30 Days
For Subs & Suppliers, payment is required to be made within 30 days after receipt of payment from above. Payment to GCs is required within 45 days from invoice, unless otherwise agreed in contract.
Construction is a highly regulated industry in the United States, and that doesn’t stop with respect to the payment aspect. Legislation related to payment timing, retainage, lien rights or other security instruments, how to treat funds prior to payment, and more all must be balanced with construction participants’ freedom of contract.
In Connecticut there are strict rules and regulations that limit freedom of contract, as public policy has generally come down on the side of protecting payments to construction participants, and regulatory control toward that end. This is true with respect to both private and public projects in Connecticut.
This means that owners, property developers, contractors, and suppliers must be careful to consider the rules and regulations set forth by Connecticut statutory law prior to drafting and signing construction contracts, so they don’t risk the contract being invalidated. In Connecticut, the time for payment, and the retainage amount are subject to control by state law. Despite this, however, Connecticut allows construction participants to agree that a paying party’s receipt of payment from above can be a specific condition precedent to payment down the chain. These pay if paid provisions work to shift the risk of nonpayment on a project to parties lower on the payment chain.
The ability for participants to tie their ability to get paid at all to the actions of third parties higher on the payment chain means that construction participants in Connecticut should be very careful and thorough in reviewing their contracts. Especially since some pay if paid provisions are included in “standard” construction contracts like AIA contract documents.
Another aspect of construction payment terms that Connecticut does not allow construction participants to modify by contract, is the ability to file a lien to secure the amount due. While lien waivers are generally unregulated in Connecticut, and parties may use any form with any wording they want, lien rights may not be waived in contract prior to furnishing work.
There are some key laws that regulate the construction payment process in Connecticut, which include:
- Lien Rights Laws
- Preliminary Notices
- Lien Waivers
- Mechanic Liens
- Bond Claims
- Retainage Laws
- Prompt Payment Laws
The applicability and enforceability of pay when paid and pay if paid provisions are an interesting part of Connecticut’s regulation of payment terms in construction. Pay when paid clauses are likely enforceable as a timing mechanism, but only to the extent that they are not in conflict with the timing for payment set forth by Connecticut’s prompt payment statutes. This is confusing and sloppy, and does not need to be the case. While Connecticut is clearly reluctant to enforce pay when paid clauses, the Connecticut Supreme Court passed on the opportunity to rule on the enforceability of pay when paid clauses in Blakeslee Arpaia Chapman, Inc. v. EI Constructors, Inc. (239 Conn. 708), despite outlining 8 distinct reasons why pay when paid clauses should not be enforceable.
Despite Connecticut’s severe reluctance to enforce pay when paid provisions, pay if paid provisions are enforceable in certain circumstances. There is a general reluctance to enforce pay if paid clauses, as well, but they will be enforced when a clause is detailed, specific, and contains exacting wording that the parties intend to shift the risk of non-payment. This is a very exacting requirement in Connecticut. Merely using words that work as “magic words” to shift the risk in other states (like “condition precedent”) is insufficient by itself in Connecticut. Wording such as the following, quoted in Lindade Construction, Inc. v. Continental Casualty Company (2009 WL 765501) was determined sufficient to enforce a pay if paid clause:
The subcontractor agrees that the contractor shall be under no obligation to pay the subcontractor for any work until the contractor has been paid by the owner. The payment provisions of this agreement are subject to the condition that the contractor receive, in good funds from the owner, progress payments in at least the amounts payable to the subcontractor on this project … The subcontractor expressly accepts the risk that it will not be paid for work performed by it if the contractor, for whatever reason, is not paid by the owner for such work
However, the following wording from Sil/Carr Corp. v. Bartlett Brainard Eacott, Inc., was not:
Subcontractor expressly agrees that payment by the owner to the subcontractor for any work performed by the subcontractor is a condition precedent to any payment by the contractor to the subcontractor
In any event, t’s important for everyone on a construction project to treat one another fairly. But, when it comes to signing construction contracts in Connecticut, exchanging payment applications and other payment paperwork, and eventually the provision and receipt of payment itself . . . it’s important to know the rules of the game. This page provides a resource to you to really understand those rules.
