Delaware Payment Terms Guide & FAQs

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Delaware Payment Terms Overview

Delaware Payment Terms Overview


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Pay when Paid valid Icon
Pay When Paid (Maybe?) Enforceable as Timing Clause

Pay when paid clauses were enforceable in Delaware prior to the passage of a statutory ban on pay-if-paid contracts. Accordingly, it is now unclear whether pay when paid clauses will be interpreted as a "pay if paid" clause subject to the ban, or if they can be enforced as a timing mechanism. In any event, a pay when paid clause would not be allowed to serve as a condition precedent to completely bar payment.


Pay if Paid not valid Icon
Pay If Paid Not Valid

With respect to private projects in Delaware, pay if paid clauses are unenforceable by statute.


Trust Fund Statute Exists

Delaware’s construction trust fund statute is strong, and applies to all parties (other than the owner) who both receive funds and also owe payment down the payment chain. There are no specific requirements regarding keeping trust funds in separate accounts or avoiding commingling of funds, provided the payments subject to the trust requirements end up in the right place.

The penalties for violation of the trust fund provisions in Delaware are strong.


Retainage Unregulated Icon
Retainage Unregulated

Delaware has no specific statutes governing retainage on private projects. Accordingly, retainage is governed by the contract between the parties.


15
DAYS
Payment Due to Subs/Suppliers in 15 Days

For Subs & Suppliers, payment is required to be made within 15 days of receipt of payment from above , unless otherwise agreed by contract. Payment to GCs is required within 30 days from invoice or end of the billing cycle.


lien waivers not regulated
Lien Waiver Form Not Regulated

Delaware does mandate the use of a particular lien waiver form by statute, so parties are free to use and form with any words they want. However, Delaware does regulate the timing of lien waivers, and waivers are not allowed in contract or otherwise prior to payment.

Pay when Paid valid Icon
Pay When Paid (Maybe?) Enforceable as Timing Clause

It is not particularly clear with respect to public projects, but, similarly to private projects, it is likely that any pay when paid clause would only be enforceable as a timing mechanism, if at all.


Pay If Paid Validity Unclear

While Del. Code Ann. tit. 6, § 3507(e) completely disallows pay if paid provisions, sub-part (f) of that statute states that it doesn't apply to public projects. Accordingly, it is unclear how such a clause will be treated on public projects.


Trust Fund Statute Exists

Delaware’s construction trust fund statute is strong, and applies to all parties (other than the owner) who both receive funds and also owe payment down the payment chain. There are no specific requirements regarding keeping trust funds in separate accounts or avoiding commingling of funds, provided the payments subject to the trust requirements end up in the right place.

The penalties for violation of the trust fund provisions in Delaware are strong.


Retainage 5% Icon
Retainage Limited to 5%

In Delaware, retainage cannot exceed 5% of the value of work completed by a contractor.


21
DAYS
Payment Due to Subs/Suppliers in 21 Days

For Subs & Suppliers, payment is required to be made within 21 days of receipt of payment from above , unless otherwise agreed by contract.

Payment to GCs is more complicated: Progress payments due according to contract if the contract is to be completed in less than 90 days, but for longer contracts, progress payments are due monthly within 21 days of the date on which the progress work has been certified and approved. Final/retainage payment due within 60 days of acceptance of the work.

Construction is a highly regulated industry in the United States, and that regulation continues through the payment terms. In every state 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 Delaware there are many strict rules and regulations that limit freedom of contract, with respect to construction payment terms. Delaware exercises significant regulatory control over construction payment terms on both private and public projects.

This means that owners, property developers, contractors, and suppliers must be careful to consider the rules and regulations set forth by Delaware statutory law prior to drafting and signing construction contracts, so they don’t risk the contract being invalidated. In Delaware, the time for payment (both general payment timing provisions and contingent payment provisions), retainage amount, lien waiver timing, and how construction funds must be treated prior to payment are all subject to rules and regulations set forth by state law.

Delaware has passed legislation that specifically disallows pay if paid provisions to be enforceable to shift the risk of nonpayment on a project to parties lower on the payment chain. Accordingly, construction participants in Delaware should be very careful about using standard construction contract templates, as many (AIA contract documents) contain these prohibited contingent payment provisions. In the absence of a sufficient sever ability clause, including statutorily disallowed provisions in a contract may be sufficient to invalidate the entire agreement.

Delaware is also strict in protecting the ability to file a lien to secure the amount due for work on a construction project. While lien waivers forms are unregulated in Delaware, and parties may use any form with any wording they want, lien rights may not be waived in contract or even at any point prior to payment. This is very strong protection to retain lien rights, as the earliest a participant may waive lien rights is pursuant to payment. This doesn’t meant that lien waivers do not need to be examined carefully, however. Since the form is not regulated by statute, a lien waiver can say basically whatever the drafting party wants it to. This means care should be taken to ensure that a lien waiver in Delaware doesn’t act to waive more than lien rights, or, at least, more than was intended to be waived.

There are some key laws that regulate the construction payment process in Delaware, which include:

Another interesting aspect of Delware’s regulation of construction payment terms is the regulation of how construction funds must be treated prior to payment. Delaware has a construction trust fund statute to give further protection to construction parties against the misappropriation of funds meant to pay for the improvement to property. Delaware’s construction trust fund statute applies to all parties (other than the owner) who both receive funds and also owe payment down the payment chain. There are no specific requirements regarding keeping trust funds in separate accounts or avoiding commingling of funds, provided the payments subject to the trust requirements end up in the right place – but it’s very important to make sure that the funds do end up in the right place.

The penalties for violation of the trust fund provisions in Delaware are strong. A violator can be liable for interest, and if the payment was not subject to a good-faith dispute for reasonable cause, attorneys’ fees may also be awarded. Parties who violate the trust fund provisions in Delaware can be subject to criminal fines and even imprisonment.

In any event, it’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 Delaware

The construction payment process is highly regulated in Delaware. 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 Delaware jobs.

Delaware Payment Terms & Payment Applications FAQs

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

It is difficult to significantly impact payment rights through contract in Delaware, given the significant rules and regulations set forth by statute. However, there are definitely ways in which a construction participant can change the general statutory protections.

This is a complex question, and always requires looking at a few different things. While the timing of payment is generally controlled by statute in Delaware, that is only in the absence of contractual provisions modifying the general scheme (at least with respect to private projects). Delaware allows parties on a construction project to modify the payment timing provisions set out by statute and contract for their own payment timing terms.That doesn’t necessarily mean that the right to recover payment itself can be given up, but, it does mean that recovering payment can take longer and be harder.

Delaware is quite protective of lien rights, so lien rights cannot be waived in a contract prior to work, and also cannot be waived prior to payment itself. Again, though, this isn’t a blanket protection. Lien waiver forms themselves are unregulated in Delaware, which means that they can contain waivers of rights in addition to the lien rights a party is expecting to waive.

What Happens if Funds Supposed to be Used to Pay Me Are Misappropriated?

Delaware protects against the misappropriate of construction payment funds through a construction trust fund statute which holds that construction funds must be held in trust for the benefit of the parties to be paid from those funds.

Unlike many states, Delaware’s construction trust fund statute applies to all parties throughout the payment chain (other than the owner) who both receive fund and also owes payment down the payment chain.

The penalties for violation of the trust fund provisions in Delaware are strong. A violator can be liable for interest, and if the payment was not subject to a good-faith dispute for reasonable cause, attorneys’ fees may also be awarded. Parties who violate the trust fund provisions in Delaware can be subject to criminal fines and even imprisonment.

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

Yes. Delaware 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). Even though lien waivers are not enforceable unless exchanged pursuant to payment, parties in Delaware 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 Prohibited Clause?

There are several clauses that are specifically prohibited by Delaware law. No lien clauses, advance lien waivers, and pay id paid clauses are all not allowed in Delaware. Accordingly, the least that would happen is that these clauses would not be enforceable.

However, 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 severability 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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