Connecticut Payment Terms Guide & FAQs

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Connecticut Payment Terms Overview

Connecticut Payment Terms Overview


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Pay when Paid valid Icon
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 5% Icon
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.


30
DAYS
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 waivers not regulated
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 Paid valid Icon
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 icon
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%.


30
DAYS
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:

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.

Payment Applications & Payment Terms FAQs in Connecticut

The construction payment process is highly regulated in Connecticut. It can be confusing to figure out when payments must be made, how to make them, and how to best protect your company from expensive problems. Here are some frequently asked questions that come up with the payment application and payment process on Connecticut jobs.

Connecticut Payment Terms & Payment Applications FAQs

How Much Retainage Can be Withheld in Connecticut.

The amount of retainage allowable on Connecticut construction projects depends in the project itself. For private projects, retainage is limited by Conn. Gen. Stat. §§ 42-158j-42-158r to 5% of the estimated payment amount.

For public projects the amount of retainage that can be withheld 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%, and Municipal contracts have a maximum retainage rate of 5%.

Can I Waive or Modify My Rights to Payment through Contract?

To some extent yes, but it’s difficult.

Connecticut does not allow construction participants to waive lien rights in contract prior to work, so there is a method of recovery in the event that payment is not made. Further, the time for payment is governed by statute prompt pay statutes for both private and public projects, and as seen above, retainage is limited in amount and the time for which it can be held.

However, Connecticut does allow parties to enforce pay if paid agreements that can shift the risk of nonpayment to parties lower on the payment chain, and work to completely bar payment when payment is not received from above.

How Specific Does a Pay If Paid Clause Need to be In Order to be Enforced?

Very.

Despite Connecticut’s general reluctance to enforce pay if paid clauses, 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

Can Retainage Ever Be Held Indefinitely?

Kind of. While there are general rules that govern the amount of time retainage may be withheld upon a project’s completion, public entities and contractors on public jobs may continue to withhold funds in an amount of up to 150% of the disputed amount when a good faith dispute exists.

Can I Waive Rights Other than Lien Rights through a Lien Waiver?

Yes. Connecticut doesn’t regulate lien waiver forms. This means that a lien waiver can include whatever terms the parties want to have it include (as long as the terms are otherwise allowable in contracts). Parties in Connecticut must be careful to make sure that they understand what rights they are giving up when delivering a lien waiver, and take care to make sure that only the rights they intend to waive are included in the waiver.

What Happens If I Signed a Contract With a "No Lien" Clause?

No lien clauses are not allowed in Connecticut, since lien rights are not able to be waived prior to furnishing labor or materials to the project. Accordingly, a no lien clause is not enforceable, and would not work to bar a subsequent lien filing.

In some cases, an invalid contract provision can invalidate the entire contract. This is why contracts generally include a “severability clause” which states that in the event any provision of the contract is not allowable, it may be excised from the contract without affecting the other provisions. If there is no sever ability clause, some courts will enforce the enforceable provisions anyway (at least when it is equitable to do so), but there is definitely a possibility in some cases that the whole contract could be void.

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