Georgia Payment Terms Overview
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Pay When Paid Valid
Georgia case law specifically allows pay when paid clauses to be enforced as a complete ban on payment if explicit. Contract language stating that payment will be made only when payment is received from above is effective to effectively bar payment forever. Provided the clause is explicit. United States ex rel. McKenney's, Inc. v. Gov't Tech. Servs., LLC, 531 F. Supp. 2d 1375, 1378 (N.D. Ga. 2008)
Pay If Paid Valid
Pay if paid clauses are enforceable as a condition precedent to payment in Georgia, but the contract must contain an express provision clearly showing that the intent of the parties was to shift the risk of nonpayment.
Trust Fund Statute Does Not Exist
Georgia does not have a specific construction trust fund statute. However, Georgia imposes criminal penalties on parties who withhold payment to subs and suppliers after they have themselves been paid. And, even without specific statutory language, Georgia courts have held that construction trust fund requirements are imposed with respect to payments due to material suppliers when such suppliers either have filed or could file a valid mechanics lien.
Retainage Amount Unregulated
In Georgia, the amount of retainage on private projects is unregulated, and set by the contract between the owner and the GC.
Payment Due to Subs/Suppliers in 10 Days
For Subs & Suppliers, payment is required within 10 days after payment is received from above. Payment to GCs is required within 15 days of invoice.
Lien Waivers Regulated
Georgia has specifically required lien waiver forms that must be used in order for the waiver to be effective. Additionally, Georgia has an interesting rule that turns an conditional waiver into a unconditional waiver 60 days after exchange (whether or not payment has been made) unless other action is taken.
Pay When Paid Valid
Pay when paid clauses may be treated as a pay if paid clause sufficient to bar payment if sufficiently clear and unambiguous. Otherwise, a pay when pay clause is treated as a timing mechanism.
Pay If Paid (Likely) Valid in Some Cases
It is a bit unclear how Georgia treats pay if paid clauses on public projects. It appears from pay when paid language that receipt of payment from above can be a condition precedent for payment. However, at least one Georgia court case drew a distinction between whether the existence of the debt was conditional or whether the debt existed and the payment was conditional. If the latter, the court did not allow payment to be withheld indefinitely.
Trust Fund Statute Does Not Exist
Georgia does not have a construction trust fund staute that applies to public projects.
Retainage Cannot Exceed 10%
In Georgia, retainage cannot exceed 10% of each progress payment. After substantial completion of a project, the public entity must release the retained amount within 30 days of receiving contractor's invoice. However, the public entity may withhold 200% of the value of any incomplete items, to be released upon the specific item’s completion. Contractor and subs must release retainage down the chain witin 30 days of receiving retainage payments.
Payment Due to Subs/Suppliers in 10 Days
Payment to subs/suppliers due within 10 days after payment received from above. Payment to GCs due within 15 days of invoice. Note, however, that prompt pay regulations do not apply when the contracting public entity is a county of less than 10,000 people or town of less than 2,500.
Georgia has a lot of regulation surrounding construction payment, including rules surrounding retainage, prompt payment, lien waivers, no-lien clauses, and more. In fact, Georgia has some unique requirements and regulations with respect to construction payment, and the right to be paid. Knowing these complicated rules is important to making sure that payment on a Georgia project is smooth, stress free, and actually occurs.
The wording of a construction contract is very important in Georgia, because it’s possible for payment clauses to alter or even completely prohibit a participant’s right to payment. This is true even for documents that are “industry standard.” This means it’s very important for companies on a Georgia construction job to read their contract documents carefully and make sure they know what they are signing.
Georgia specifically allows parties on private projects to modify their rights to payment and shift the risk of nonpayment through pay when paid and pay if paid provisions. These clauses are very common in construction contracts and they are even included within the AIA standard documents. In Georgia, if the wording is specific and clear, a pay when paid clause stating that payment will be made only when payment is received from above can effectively bar payment forever. This was discussed in the case United States ex rel. McKenney’s, Inc. v. Gov’t Tech. Servs., LLC, 531 F. Supp. 2d 1375, 1378 (N.D. Ga. 2008), among others.
The effectiveness of such risk-shifting provisions is less clear and potentially subject to some more legal nit-picking on public projects in Georgia, but best practice would be to treat them as effective. It is likely that pay when paid and pay if paid clauses would be enforceable on public projects in Georgia to the same extent as private projects, but at least one court has examined this issue from a more theoretical perspective. That court drew a distinction between whether the existence of the debt itself was conditional, or whether the debt existed and merely the payment was conditional. If the latter, the court did not allow payment to be withheld indefinitely. This seems to suggest that there is the possibility, depending on how a risk-shifting contract clause was written that a Georgia court could determine that a a clause that didn’t explicitly specify that the existence of the the debt itself is conditioned upon payment being received above, to work as a timing mechanism for a payment that must ultimately be made.
Additionally, Georgia has a unique, and one of the most interesting, rules governing lien waivers. Georgia statutes specifically hold that a conditional waiver automatically turns into an unconditional waiver (even if payment is not made) due to only the passing of time. While it makes sense for there to be some time period after which a third-party should be able to rely on a waiver and assume payment was made, this means that construction participants in Georgia must be very careful to monitor payment after even conditional waivers are exchanged, as the potential penalty for failing to do so is a complete loss of lien rights, even if not paid.
There are some key laws that regulate the construction payment process in Georgia, which include:
- Lien Rights Laws
- Preliminary Notices
- Lien Waivers
- Mechanic Liens
- Bond Claims
- Retainage Laws
- Prompt Payment Laws
Georgia also has additional rules that apply to prompt payment regulations. While it seems like it would make sense for prompt payment rules to apply universally, since the public policy underlying the requirement to pay construction participants for the work they perform to improve property within a reasonable time shouldn’t change based on project type, that is not the case. Georgia does not regulate or set forth specific timing requirements for payment on private residential projects of less than 12 individual units, or for public projects on which the contracting public entity is a county of less than 10,000 people or a town of less than 2,500.
Finally, although Georgia does not have a specific construction trust fund requirements set forth by a statute that governs the treatment of construction funds prior to payment, there are still specific rules and requirements that must be complied with. On private projects, Georgia imposes criminal penalties on parties who withhold payment to subs and suppliers after they have themselves been paid. And, even without specific statutory language, Georgia courts have held that construction trust fund requirements are imposed with respect to payments due to material suppliers when such suppliers either have filed or could file a valid mechanics lien.
It’s important for everyone on a construction project to treat one another fairly, that’s something that everybody should think of as merely “table stakes.” But, it also makes sense to follow the Russian proverb, “trust, but verify.” When it comes to signing construction contracts in Georgia, exchanging payment applications, holding construction funds prior to payment, and eventually, providing or receiving payment itself . . . it’s important to know the rules of the game and how they apply to a particular situation. This page provides a resource to you to really understand those rules.
