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Is there a required time of payment to pay a subcontractor?

TennesseePrompt Payment

A subcontractor that we have used believes he should be paid on Fridays as employees are paid. Is it a requiement to pay him on a scheduled day or can it we pay when the job is finished?

2 replies

Sep 19, 2018
Payment, and the timing of payment, is always a thorny issue in construction. With slim margins and multiple financial responsibilities for different jobs, it can be very, very important for companies and people to understand the timeline for payment.

In Tennesse, there are prompt payment statutes that govern the required timing of payments on all projects other than residential projects of 4 or fewer units. For such residential projects, the timing of payment is only determined by the agreement between the parties.

For projects on which the prompt payment statutes apply, the payment from a prime contractor to a subcontractor is required to be paid in accordance with the schedule for payments established within the contract and within 30 days after application for payment is timely submitted, in accordance with the schedule. Note, however, that payment can be subject to a valid pay-when-paid clause.

Nothing, however, unless contained within the contract specifies that payment must be made on a particular day of the week.
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Sep 19, 2018
That's a good question. On one hand, that's not that absurd of a request (that is, wanting to be paid for your work on a weekly basis). Of course, that's not really how the construction industry works - at least not at the moment. That being said, there are some rules on when payments must be made. In Tennessee, for residential projects (of 4 or fewer units), payments should be made within the schedule set out in the contract for payments. For non-residential jobs, payment must be made within the schedule set out by contract and also within 30 days after application for payment is submitted. So, as long as the contract sets out a schedule for payments within 30 days, that schedule must be followed. If there is no schedule, or if the schedule exceeds 30 days, subcontractors must be paid within 30 days after application for payment is submitted. Of course, there are substantial benefits to making payments more regularly than once a month, if possible. It's also worth noting that, in Tennessee, payments will be subject to valid pay-when-paid clauses which could delay payments. Note, though, that aggressively utilizing pay-when-paid agreements can take a serious toll on subcontractor relationships and could result in unfair outcomes. Anyway, if payments are made outside of the allowable time frames, interest penalties could come into play for late payments. Plus, regardless of allowable time frames, slow payment can result in disputes and potentially lien claims. Thus, it's a good idea to stay in contact with subcontractors to make sure that payment expectations are understood and met by both sides.
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