Illinois Prompt Payment Guide & FAQs

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Illinois Prompt Payment Overview

Illinois Prompt Payment Requirements


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40
DAYS
Prime Contractors

For Prime (General) Contractors, progress payments are due within 15 days of approval of a request for payment. Approval must be done within 25 days, considered automatically approved on 25th day if no written notice detailing withholding of payment delivered.


15
DAYS
Subcontractors

For Subcontractors, payment is due within 15 days after payment is received above.


15
DAYS
Suppliers

For Suppliers, payment is due within 15 days after payment is received above.


10%
/ YEAR
Interest & Fees

Interest at 10% year; no fees provision

60/90
DAYS
Prime Contractors

For Prime (General) Contractors, request for payments must be approved within 30 days. Upon approval, local gov't entities must pay within 30 days, state gov't entities within 60 days.


15
DAYS
Subcontractors

For Subcontractors, payment is due within 15 days of after payment is received above.


15
DAYS
Suppliers

For Suppliers, payment is due within 15 days of after payment is received above.


1%
Interest & Fees

Interest at 1% per month for Prime; Interest at 2% per month for sub-tiers.

Prompt payment laws are a set of rules that regulate the acceptable amount of time in which payments must be made to contractors and subs. This is to ensure that everyone on a construction project is paid in a timely fashion. These statutes provide a framework for the timing of payments to ensure cash flow and working capital.

Projects Covered by Prompt Payment in Illinois

The state of Illinois regulates prompt payment on both private and public construction projects.

Private Projects

Payment on private construction projects in Illinois is regulated by §815 ILCS 603/1 et seq. These regulations apply to all private projects except for residential projects of 12 or fewer units.

Payment Deadlines for Private Projects

Once a prime contractor has performed in accordance with the contract provisions they will be entitled to payment from the owner within 15 calendar days after the request for payment is approved. The owner must approve payment applications within 25 days of receipt. Upon receipt of payment from the owner, the prime contractor must pay their subcontractors and suppliers within 15 days.

Penalties for Late Payment on Private Projects

If the owner disputes the request, they must send notice within the 25-day approval period, or the request is deemed approved. However, failure to send notice, or otherwise late or wrongfully withheld payments will be subject to interest penalties. Interest will accrue at a rate of 10% a year (0.833%/month). Additionally, contractors and subs who send a notice of nonpayment to the paying party may suspend performance after 7 days until payment is made.

Public Projects

Illinois has two separate sets of statutes that regulate payment on public works projects. These statutes are divided into local public projects 50 ICLS 505/1 et seq., and state public projects found in 30 ICLS 540/0.01 et seq.

Payment Deadlines for Public Projects

When a prime contractor has submitted a proper request for payment the contracting government entity must approve the request within 30 days. Once approved, local gov’t entities must make payment within 30 days, while state gov’t entity’s must make payment within 60 days.

Upon receipt of payment, contractors must make payment to their subs and suppliers within 15 days on local projects, or the earlier of 10 business days or 15 calendar days on state projects. The same deadline applies to payments to sub-subcontractors as well.

Penalties for Late Payment on Public Projects

Any late or wrongfully withheld payments will be subject to interest penalties. For payments to the prime contractor, the interest will accrue at 1% per month. While all other payments will accrue interest at 2% per month until the payment has been made.

Illinois prompt payment quick guide

Illinois Prompt Payment Frequently Asked Questions

Illinois Prompt Payment Private Projects FAQs

What types of private projects are subject to Illinois' Prompt Payment laws?

Illinois’ prompt payment laws apply to all private construction contracts with a few exceptions. These regulations do not apply to contracts that require the expenditure of public funds, single-family residential projects, or multiple-family residential projects of 12 or fewer units in a single building.

When do payments become due under Illinois' Prompt Payment laws?

Payments will become “due” for the purposes of Illinois’ prompt payment laws when the following have occurred:

• Performance according to the contract by the party requesting payment; &

• The party requesting payment had its pay application approved by the property owner or owner’s agent (prime contractor), or the work has been accepted by the owner, owner’s agent, or contractor (subcontractor).

When is the deadline for payments under Illinois' Prompt Payment laws?

Owner to contractor

When a payment application has been submitted to the owner, payment should be made within 15 calendar days after approval. Payments are deemed approved within 25 days or receipt of a proper pay app. So the latest payment can be made is 40 days from when the request for payment was submitted.

Contractors to subs/suppliers

Upon receipt of payment from the higher-tiered party, payments should be made to that party’s subcontractors and/or suppliers within 15 calendar days.

Are there reasons for which payment may be withheld past the general deadline?

If the owner or contractor finds that a portion of the work is not in accordance with the terms of the contract, they can withhold the reasonable value of that portion of the work only. All other approved work shall be paid.

If I am paid late according to Prompt Payment Statutes, can I obtain interest or other Penalty Payments?

If payment isn’t made pursuant to the IL prompt payment provisions, the late paying party will be liable for the amount of that payment, plus interest at a rate of 10% per year until payment has been made.

Also, if a party isn’t paid in accordance with the IL prompt payment laws, the unpaid party may suspend performance without penalty of breach of contract until payment has been made; provided that the unpaid party gives 7 calendar days notice to the party failing to make the required payment.

Can I include Prompt Payment fees in my Illinois mechanics liens claim?

No. Illinois does not allow miscellaneous amounts to be included on the face of an Illinois mechanics lien. Note also that interest on late payments allowed by the prompt pay act may not be awarded in addition to any interest charged to the paying party via Illinois Mechanics Lien Act.

What is the best practice for making a demand to a non-paying party to get Prompt Payment fees?

Sending a 90-day Notice of Intent to Lien along with a Notice of Intent to Make a Prompt Payment Claim is generally the best method for encouraging parties to make payment. If payment still isn’t forthcoming, a lawsuit may be necessary.

• For more on this, see: How to Make a Claim under Prompt Payment Laws.

Illinois Prompt Payment Public Projects FAQs

What types of public projects are subject to Illinois' Prompt Payment laws?

The Illinois Local Government Prompt Payment Act applies to all construction projects commissioned by a county, township, municipality, municipal corporation, school district/board, forest preserve district, park district, fire protection district, sanitary district, and all other local government units.

The Illinois State Government Prompt Payment Act applies to all construction projects commissioned by any State official or agency authorized to provide for payment from State funds.

When do payments become due under Illinois' Prompt Payment laws?

Payments will become “due” for the purposes of Illinois’ prompt payment laws when the following have occurred:

• Performance according to the contract by the party requesting payment; &

• Approval of a proper invoice or pay application by the government entity or the contractor (as applicable).

What is the deadline for payments under Illinois' Prompt Payment laws?

Local Government Projects

Public entity to contractor

• Payments must be approved within 30 days of receipt of a proper pay application, or when the goods or services are received; whichever is earlier. Upon approval, the entity must pay the contractor within 30 days. Therefore, the total time from proper invoice to payment is 60 days.

• If safety/quality assurance testing is necessary before approval; approved/disapproved upon completion of testing or within 60 days of receipt of goods/services; whichever is earlier.

Contractors to subs/suppliers

• Upon receipt of payment from the higher-tiered party, payments should be made to that party’s subcontractors and/or suppliers within 15 days.

State Government Projects

Public entity to contractor

• Payments must be approved within 30 days of receipt of a proper pay application, or when the goods or services are received; whichever is earlier. Upon approval, the entity must pay the contractor within 60 days. Therefore, the total time from proper invoice to payment is 90 days.

Contractors to subs/suppliers

• Upon receipt of payment from the higher-tiered party, payments should be made to that party’s subcontractors and/or suppliers within 10 business days, or 15 calendar days; whichever occurs earlier.

Are there reasons for which payment may be withheld past the general deadline?

Payments may be withheld for “reasonable cause,” which includes:

• Unsatisfactory workmanship or materials; or

• Failure to provide documentation as required by the contract.

If I am paid late according to Prompt Payment Statutes, can I obtain interest or other Penalty Payments?

If payment isn’t made pursuant to the IL prompt payment provisions without “reasonable cause,” the late paying party will be subject to interest penalties. Late payments from the public entity to the prime contractor will accrue interest at a rate of 1% per month until payment is made. Late payments from contractors to their subs and/or suppliers will accrue interest at a rate of 2% per month.

What if the payment request is improper or incomplete?

If the public entity or contractor determines that  the bill or invoice contains a defect, they must notify the party requesting payment within 30 days. If only a portion of the request is disapproved, the approved portion of the pay request must be paid.

Can I include Prompt Payment Fees in my Illinois bond claim?

Miscellaneous amounts are not allowed on Illinois bond claims. However, interest would likely be recovered through a successful action to enforce a bond claim.

What is the best practice for making a demand to a non-paying party to get Prompt Payment fees?

Sending a Notice of Intent to Make a Bond Claim along with a Notice of Intent to Make a Prompt Payment Claim is generally the best method for encouraging parties to make payment.

If payment still isn’t forthcoming, a lawsuit may be necessary. For more on this, see: How to Make a Claim under Prompt Payment Laws.

Note, on State public works projects, a subcontractor who hasn’t been paid in accordance with the prompt payment deadlines can file a written notice and request for administrative hearing with the State official or agency along with a copy of the notice and request to the prime contractor.

• Such notice should be a sworn statement identifying the contract, the contractor, and the amount due; and should be sent by certified or registered mail.

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Illinois Prompt Payment Statutes

Getting informed about prompt payment laws is important. An examination of Illinois prompt payment laws, the rules and regulations related to payment timing, is important to know your rights and responsibilities as a party on a construction project. Illinois’ specific laws can be found in: 815 ILCS 603/1 et seq. for private projects, 50 ILCS 505/1 et seq. for local government projects, and 30 ILCS 540/0.01 et seq., which are reproduced below. Updated as of 2020.

Prompt Payment Statutes on Private Projects

§ 603/1. Short title

This Act may be cited as the Contractor Prompt Payment Act.

§ 603/5. Definitions

In this Act:

(a) “Payment application” means, in accordance with the terms and definitions of the applicable contract, any invoice, bill or other request for periodic payment, final payment, payment of change order or request for release of retainage from the contractor to the owner.

(b) “Construction contract” means a contract or subcontract, entered into after the effective date of this Act, for the design, construction, alteration, improvement, or repair of Illinois real property, except for contracts that require the expenditure of public funds and contracts for the design, construction, alteration, improvement, or repair of single family residences or multiple family residences with 12 or fewer units in a single building.

(c) “Contractor” and “subcontractor” shall have the meanings ascribed to them by the Illinois Mechanics Lien Act and cases decided under that Act.

§ 603/10. Construction contracts

All construction contracts shall be deemed to provide the following:

(1) If a contractor has performed in accordance with the provisions of a construction contract and the payment application has been approved by the owner or the owner’s agent, the owner shall pay the amount due to the contractor pursuant to the payment application not more than 15 calendar days after the approval. The payment application shall be deemed approved 25 days after the owner receives it unless the owner provides, before the end of the 25-day period, a written statement of the amount withheld and the reason for withholding payment. If the owner finds that a portion of the work not in accordance with the contract, payment may be withheld for the reasonable value of that portion only. Payment shall be made for any portion of the contract for which the work has been performed in accordance with the provisions of the contract. Instructions or notification from an owner to his or her lender or architect to process or pay a payment application does not constitute approval of the payment application under this Act.

(2) If a subcontractor has performed in accordance with the provisions of his or her contract with the contractor or subcontractor and the work has been accepted by the owner, the owner’s agent, or the contractor, the contractor shall pay to his or her subcontractor and the subcontractor shall pay to his or her subcontractor, within 15 calendar days of the contractor’s receipt from the owner or the subcontractor’s receipt from the contractor of each periodic payment, final payment, or receipt of retainage monies, the full amount received for the work of the subcontractor based on the work completed or the services rendered under the construction contract.

§ 603/15. Interest; suspension of performance

(a) If a payment due pursuant to the provisions of this Act is not made in a timely manner, the delinquent party shall be liable for the amount of that payment, plus interest at a rate equal to 10% per annum.

(b) A contractor or subcontractor who is not paid as required by this Act may, after providing 7 calendar days’ written notice to the party failing to make the required payment, suspend performance of a construction contract without penalty for breach of contract, until the payment required pursuant to this Act is made.

(c) The interest imposed by this Act shall not be duplicative of the interest charged under the Mechanics Lien Act.

§ 603/20. Retainage

No construction contract may permit the withholding of retainage from any payment in excess of the amounts permitted in this Section. A construction contract may provide for the withholding of retainage of up to 10% of any payment made prior to the completion of 50% of the contract. When a contract is 50% complete, retainage withheld shall be reduced so that no more than 5% is held. After the contract is 50% complete, no more than 5% of the amount of any subsequent payments made under the contract may be held as retainage.

§ 603/99. Effective date

This Act shall take effect upon becoming law.

Prompt Payment Statutes on Local Public Projects

§ 505/1. Short title

This Act shall be known and may be cited as the “Local Government Prompt Payment Act”.  

§ 505/2. Application

This Act shall apply to every county, township, municipality, municipal corporation, school district, school board, forest preserve district, park district, fire protection district, sanitary district and all other local governmental units. It shall not apply to the State or any office, officer, department, division, bureau, board, commission, university or similar agency of the State, except as provided in Section 7.

§ 505/3. Approval of bill for goods and services

The appropriate local governmental official or agency receiving goods or services must approve or disapprove a bill from a vendor or contractor for goods or services furnished the local governmental agency within 30 days after the receipt of such bill or within 30 days after the date on which the goods or services were received, whichever is later. If one or more items on a construction related bill or invoice are disapproved, but not the entire bill or invoice, then the portion that is not disapproved shall be paid. When safety or quality assurance testing of goods by the local governmental agency is necessary before the approval or disapproval of a bill and such testing cannot be completed within 30 days after receipt of the goods, approval or disapproval of the bill must be made immediately upon completion of the testing or within 60 days after receipt of the goods, whichever occurs first. Written notice shall be mailed to the vendor or contractor immediately if a bill is disapproved.

§ 505/4. Bill approved for payment

Any bill approved for payment pursuant to Section 3 shall be paid within 30 days after the date of approval. If payment is not made within such 30 day period, an interest penalty of 1% of any amount approved and unpaid shall be added for each month or fraction thereof after the expiration of such 30 day period, until final payment is made.

§ 505/5. Failure to approve bill

If the local governmental official or agency whose approval is required for any bill fails to approve or disapprove that bill within the period provided for approval by Section 3, the penalty for late payment of that bill shall be computed from the date 60 days after the receipt of that bill or the date 60 days after the goods or services are received, whichever is later.

§ 505/6. Time periods pertaining to particular goods or services

The time periods specified in Sections 3, 4 and 5, as they pertain to particular goods or services, are superseded by any greater time periods as agreed to by the local government agency and the particular vendor or contractor.

§ 505/7. Expediting distribution of funds

If the funds from which the local governmental official or agency is to pay for goods or services are funds appropriated or controlled by the State, then the local governmental official or agency may certify to the State Treasurer, Comptroller and State agency responsible for administering such funds that a specified amount is anticipated to be necessary within 45 days after certification to pay for specified goods or services and that such amount is not currently available to the local governmental official or agency. The State Treasurer, Comptroller and State agency shall than expedite distribution of funds to the local governmental unit to make such payments. The certification shall be mailed on the date of certification by certified U. S. mail, return receipt requested. Any interest penalty incurred by the local governmental unit under Section 3 or 4 because of the failure of funds to be distributed from the State to the local governmental unit within the 45 day period shall be reimbursed by the State to the local governmental unit as an amount in addition to the funds to be otherwise distributed from the State.

§ 505/9. Payments to subcontractors and material suppliers; failure to make timely payments; additional amount due

When a contractor receives any payment, the contractor shall pay each subcontractor and material supplier in proportion to the work completed by each subcontractor and material supplier their application less any retention. If the contractor receives less than the full payment due under the public construction contract, the contractor shall be obligated to disburse on a pro rata basis those funds received, with the contractor, subcontractors and material suppliers each receiving a prorated portion based on the amount of payment. All interest payments received pursuant to Section 4 also shall be disbursed to subcontractors and material suppliers to whom payment has been delayed, on a pro rata basis. When, however, the public owner does not release the full payment due under the contract because there are specific areas of work or materials the contractor is rejecting or because the contractor has otherwise determined such areas are not suitable for payment, then those specific subcontractors or suppliers involved shall not be paid for that portion of the work rejected or deemed not suitable for payment and all other subcontractors and suppliers shall be paid in full.
If the contractor, without reasonable cause, fails to make any payment to his subcontractors and material suppliers within 15 days after receipt of payment under the public construction contract, the contractor shall pay to his subcontractors and material suppliers, in addition to the payment due them, interest in the amount of 2% per month, calculated from the expiration of the 15-day period until fully paid. This Section shall also apply to any payments made by subcontractors and material suppliers to their subcontractors and material suppliers and to all payments made to lower tier subcontractors and material suppliers throughout the contracting chain.

Prompt Payment Statutes on State Public Projects

§ 540/0.01. Short title

This Act may be cited as the State Prompt Payment Act.

§ 540/1. Application of act

This Act applies to any State official or agency authorized to provide for payment from State funds, by virtue of any appropriation of the General Assembly, for goods or services furnished to the State.

For purposes of this Act, “goods or services furnished to the State” include but are not limited to (i) covered health care provided to eligible members and their covered dependents in accordance with the State Employees Group Insurance Act of 1971, including coverage through a physician-owned health maintenance organization under Section 6.1 of that Act, (ii) prevention, intervention, or treatment services and supports for persons with developmental disabilities, mental health services, alcohol and substance abuse services, rehabilitation services, and early intervention services provided by a vendor, and (iii) prevention, intervention, or treatment services and supports for youth provided by a vendor by virtue of a contractual grant agreement. For the purposes of items (ii) and (iii), a vendor includes but is not limited to sellers of goods and services, including community-based organizations that are licensed to provide prevention, intervention, or treatment services and supports for persons with developmental disabilities, mental illness, and substance abuse problems, or that provides prevention, intervention, or treatment services and supports for youth.

For the purposes of this Act, “appropriate State official or agency” is defined as the Director or Chief Executive or his designee of that State agency or department or facility of such agency or department. With respect to covered health care provided to eligible members and their dependents in accordance with the State Employees Group Insurance Act of 1971, “appropriate State official or agency” also includes an administrator of a program of health benefits under that Act.

As used in this Act, “eligible member” means a member who is eligible for health benefits under the State Employees Group Insurance Act of 1971, and “member” and “dependent” have the meanings ascribed to those terms in that Act.

As used in this Act, “a proper bill or invoice” means a bill or invoice, including, but not limited to, an invoice issued under a contractual grant agreement, that includes the information necessary for processing the payment as may be specified by a State agency and in rules adopted in accordance with this Act. Beginning on and after July 1, 2021, “a proper bill or invoice” shall also include the names of all subcontractors or subconsultants to be paid from the bill or invoice and the amounts due to each of them, if any.

§ 540/3-1. Interest penalty

The Illinois Court of Claims shall, in its investigation of payments due claimants, provide for interest penalties as prescribed in this Act; however, interest penalties in claims pursuant to the Line of Duty Compensation Act shall be paid in accordance with subsection (3) of Section 24 of the Court of Claims Act.

§ 540/3-2. Late payment to vendors; interest penalties

Beginning July 1, 1993, in any instance where a State official or agency is late in payment of a vendor’s bill or invoice for goods or services furnished to the State, as defined in Section 1, properly approved in accordance with rules promulgated under Section 3-3, the State official or agency shall pay interest to the vendor in accordance with the following:

(1) Any bill, except a bill submitted under Article V of the Illinois Public Aid Code and except as provided under paragraph (1.05) of this Section, approved for payment under this Section must be paid or the payment issued to the payee within 60 days of receipt of a proper bill or invoice. If payment is not issued to the payee within this 60-day period, an interest penalty of 1.0% of any amount approved and unpaid shall be added for each month or fraction thereof after the end of this 60-day period, until final payment is made. Any bill, except a bill for pharmacy or nursing facility services or goods, and except as provided under paragraph (1.05) of this Section, submitted under Article V of the Illinois Public Aid Code approved for payment under this Section must be paid or the payment issued to the payee within 60 days after receipt of a proper bill or invoice, and, if payment is not issued to the payee within this 60-day period, an interest penalty of 2.0% of any amount approved and unpaid shall be added for each month or fraction thereof after the end of this 60-day period, until final payment is made. Any bill for pharmacy or nursing facility services or goods submitted under Article V of the Illinois Public Aid Code, except as provided under paragraph (1.05) of this Section, and approved for payment under this Section must be paid or the payment issued to the payee within 60 days of receipt of a proper bill or invoice. If payment is not issued to the payee within this 60-day period, an interest penalty of 1.0% of any amount approved and unpaid shall be added for each month or fraction thereof after the end of this 60-day period, until final payment is made.

(1.05) For state fiscal year 2012 and future fiscal years, any bill approved for payment under this Section must be paid or the payment issued to the payee within 90 days of receipt of a proper bill or invoice. If payment is not issued to the payee within this 90-day period, an interest penalty of 1.0% of any amount approved and unpaid shall be added for each month, or 0.033% (one-thirtieth of one percent) of any amount approved and unpaid for each day, after the end of this 90-day period, until final payment is made.

(1.1) A state agency shall review in a timely manner each bill or invoice after its receipt. If the State agency determines that the bill or invoice contains a defect making it unable to process the payment request, the agency shall notify the vendor requesting payment as soon as possible after discovering the defect pursuant to rules promulgated under Section 3-3; provided, however, that the notice for construction related bills or invoices must be given not later than 30 days after the bill or invoice was first submitted. The notice shall identify the defect and any additional information necessary to correct the defect. If one or more items on a construction related bill or invoice are disapproved, but not the entire bill or invoice, then the portion that is not disapproved shall be paid.

(2) Where a State official or agency is late in payment of a vendor’s bill or invoice properly approved in accordance with this Act, and different late payment terms are not reduced to writing as a contractual agreement, the State official or agency shall automatically pay interest penalties required by this Section amounting to $50 or more to the appropriate vendor. Each agency shall be responsible for determining whether an interest penalty is owed and for paying the interest to the vendor. Except as provided in paragraph (4), an individual interest payment amounting to $5 or less shall not be paid by the State. Interest due to a vendor that amounts to greater than $5 and less than $50 shall not be paid but shall be accrued until all interest due the vendor for all similar warrants exceeds $50, at which time the accrued interest shall be payable and interest will begin accruing again, except that interest accrued as of the end of the fiscal year that does not exceed $50 shall be payable at that time. In the event an individual has paid a vendor for services in advance, the provisions of this Section shall apply until payment is made to that individual.

(3) The provisions of Public Act 96-1501 reducing the interest rate on pharmacy claims under Article V of the Illinois Public Aid Code to 1.0% per month shall apply to any pharmacy bills for services and goods under Article V of the Illinois Public Aid Code received on or after the date 60 days before January 25, 2011 (the effective date of Public Act 96-1501) except as provided under paragraph (1.05) of this Section.

(4) Interest amounting to less than $5 shall not be paid by the State, except for claims (i) to the Department of Healthcare and Family Services or the Department of Human Services, (ii) pursuant to Article V of the Illinois Public Aid Code, the Covering ALL KIDS Health Insurance Act, or the Children’s Health Insurance Program Act, and (iii) made (A) by pharmacies for prescriptive services or (B) by any federally qualified health center for prescriptive services or any other services.

Notwithstanding any provision to the contrary, interest may not be paid under this Act when: (1) a Chief Procurement Officer has voided the underlying contract for goods or services under Article 50 of the Illinois Procurement Code; or (2) the Auditor General is conducting a performance or program audit and the Comptroller has held or is holding for review a related contract or vouchers for payment of goods or services in the exercise of duties under Section 9 of the State Comptroller Act. In such event, interest shall not accrue during the pendency of the Auditor General’s review.

§ 540/3-2.1. Interest penalty report

The State Comptroller, in conjunction with the Department of Central Management Services, shall submit a report to the General Assembly no later than January 31, 2011. The report shall include the following information, which shall be broken down by State agency and vendor:

(1) the number and total dollar amount of interest penalty payment vouchers submitted to the Comptroller’s office on or after August 18, 2009 and before January 1, 2011 for interest payments of less than $5;

(2)  the number and total dollar amount of interest penalty payment vouchers submitted to the Comptroller’s office on or after August 18, 2009 and before January 1, 2011 for interest payments of at least $5 but less than $50; the report shall indicate the number and total dollar amount of (i) those paid automatically and (ii) those initiated by written request of the vendor; and

(3) the aggregate cost of processing the interest penalty payment vouchers referenced in items (1) and (2).

The report shall also include recommendations regarding establishing a minimum threshold for payment of interest penalties to vendors and increased efficiencies, including, but not limited to, consolidation of multiple payments to the same vendor.

§ 540/3-2.5. Advance payments reimbursement and interest

If a vendor provides goods or services to an individual and requires that individual to pay all or part of the cost of the goods or services in advance of the vendor being paid for those goods or services by the State, then the amount of the individual’s advance payment, and any interest under this Act attributable to the advance payment, that is paid by the State to the vendor is the property of the individual and, to the extent received by the vendor, must be promptly disbursed by the vendor to that individual.

§ 540/3-3. Promulgation of rules and policies

The State Comptroller and the Department of Central Management Services shall jointly promulgate rules and policies to govern the uniform application of this Act. These rules and policies shall include procedures and time frames for approving a bill or invoice from a vendor for goods or services furnished to the State. These rules and policies shall provide for procedures and time frames applicable to payment plans as may be agreed upon between State agencies and vendors. These rules and policies shall be binding on all officials and agencies under this Act’s jurisdiction. These rules and policies may be made effective no earlier than July 1, 1993.

§ 540/3-4. Specification of manner for recording interest penalty payments

The State Comptroller must specify the manner in which State agencies shall record interest penalty payments made under this Act. The State Comptroller may require vouchers submitted for payment, including submission by electronic or other means approved by the Comptroller, to indicate the appropriate date from which interest penalties may be calculated as required under this Act.

§ 540/4. Examination of vouchers

Nothing in this Act shall be construed to deprive the Comptroller of his power to examine vouchers as specified in the State Comptroller Act.

§ 540/5. Interest; remittance

The State remittance shall indicate that payment of interest may be available for failure to comply with this Act.

§ 540/6. Vendor's waiver of penalty for late payment

A State official or agency may not request any vendor or contractor to waive his rights, under this Act, to recover a penalty for late payment as a condition of, or inducement to enter into, any contract for goods or services.

§ 540/7. Payments to contractors and material suppliers

(a) When a State official or agency responsible for administering a contract submits a voucher to the Comptroller for payment to a contractor, that State official or agency shall promptly make available electronically the voucher number, the date of the voucher, and the amount of the voucher. The State official or agency responsible for administering the contract shall provide subcontractors and material suppliers, known to the State official or agency, with instructions on how to access the electronic information.

(a-5) When a contractor receives any payment, the contractor shall pay each subcontractor and material supplier electronically within 10 business days or 15 calendar days, whichever occurs earlier, or, if paid by a printed check, the printed check must be postmarked within 10 business days or 15 calendar days, whichever occurs earlier, after receiving payment in proportion to the work completed by each subcontractor and material supplier its application or pay estimate, plus interest received under this Act. When a contractor receives any payment, the contractor shall pay each lower-tiered subcontractor and material supplier and each subcontractor and material supplier shall make payment to its own respective subcontractors and material suppliers. If the contractor receives less than the full payment due under the public construction contract, the contractor shall be obligated to disburse on a pro rata basis those funds received, plus interest received under this Act, with the contractor, subcontractors and material suppliers each receiving a prorated portion based on the amount of payment each has earned. When, however, the State official or agency does not release the full payment due under the contract because there are specific areas of work or materials the State agency or official has determined are not suitable for payment, then those specific subcontractors or material suppliers involved shall not be paid for that portion of work rejected or deemed not suitable for payment and all other subcontractors and suppliers shall be paid based upon the amount of payment each has earned, plus interest received under this Act.

(a-10) For construction contracts with the Department of Transportation, the contractor, subcontractor, or material supplier, regardless of tier, shall not offset, decrease, or diminish payment or payments that are due to its subcontractors or material suppliers without reasonable cause.

A contractor, who refuses to make prompt payment within 10 business days or 15 calendar days, whichever occurs earlier, after receiving payment, in whole or in part, shall provide to the subcontractor or material supplier and the public owner or its agent, a written notice of that refusal. The written notice shall be made by a contractor no later than 5 calendar days after payment is received by the contractor. The written notice shall identify the Department of Transportation’s contract, any subcontract or material purchase agreement, a detailed reason for refusal, the value of the payment to be withheld, and the specific remedial actions required of the subcontractor or material supplier so that payment may be made. Written notice of refusal may be given in a form and method which is acceptable to the parties and public owner.

(b) If the contractor, without reasonable cause, fails to make full payment of amounts due under subsection (a) to its subcontractors and material suppliers within 10 business days or 15 calendar days, whichever occurs earlier, after receipt of payment from the State official or agency, the contractor shall pay to its subcontractors and material suppliers, in addition to the payment due them, interest in the amount of 2% per month, calculated from the expiration of the 10-business-day period or the 15-calendar-day period until fully paid. This subsection shall further apply to any payments made by subcontractors and material suppliers to their subcontractors and material suppliers and to all payments made to lower tier subcontractors and material suppliers throughout the contracting chain.

(1) If a contractor, without reasonable cause, fails to make payment in full as provided in subsection (a-5) within 10 business days or 15 calendar days, whichever occurs earlier, after receipt of payment under the public construction contract, any subcontractor or material supplier to whom payments are owed may file a written notice and request for administrative hearing with the State official or agency setting forth the amount owed by the contractor and the contractor’s failure to timely pay the amount owed. The written notice and request for administrative hearing shall identify the public construction contract, the contractor, and the amount owed, and shall contain a sworn statement or attestation to verify the accuracy of the notice. The notice and request for administrative hearing shall be filed with the State official for the public construction contract, with a copy of the notice concurrently provided to the contractor. Notice to the State official may be made by certified or registered mail, messenger service, or personal service, and must include proof of delivery to the State official.

(2) The State official or agency, within 15 calendar days after receipt of a subcontractor’s or material supplier’s written notice and request for administrative hearing, shall hold a hearing convened by an administrative law judge to determine whether the contractor withheld payment, without reasonable cause, from the subcontractors or material suppliers and what amount, if any, is due to the subcontractors or material suppliers, and the reasonable cause or causes asserted by the contractor. The State official or agency shall provide appropriate notice to the parties of the date, time, and location of the hearing. Each contractor, subcontractor, or material supplier has the right to be represented by counsel at a hearing and to cross-examine witnesses and challenge documents. Upon the request of the subcontractor or material supplier and a showing of good cause, reasonable continuances may be granted by the administrative law judge.

(3) Upon a finding by the administrative law judge that the contractor failed to make payment in full, without reasonable cause, as provided in subsection (a-10), then the administrative law judge shall, in writing, order the contractor to pay the amount owed to the subcontractors or material suppliers plus interest within 15 calendar days after the order.

(4) If a contractor fails to make full payment as ordered under paragraph (3) of this subsection (b) within 15 days after the administrative law judge’s order, then the contractor shall be barred from entering into a State public construction contract for a period of one year beginning on the date of the administrative law judge’s order.

(5) If, on 2 or more occasions within a 3-calendar-year period, there is a finding by an administrative law judge that the contractor failed to make payment in full, without reasonable cause, and a written order was issued to a contractor under paragraph (3) of this subsection (b), then the contractor shall be barred from entering into a State public construction contract for a period of 6 months beginning on the date of the administrative law judge’s second written order, even if the payments required under the orders were made in full.

(6) If a contractor fails to make full payment as ordered under paragraph (4) of this subsection (b), the subcontractor or material supplier may, within 30 days of the date of that order, petition the State agency for an order for reasonable attorney’s fees and costs incurred in the prosecution of the action under this subsection (b). Upon that petition and taking of additional evidence, as may be required, the administrative law judge may issue a supplemental order directing the contractor to pay those reasonable attorney’s fees and costs.

(7) The written order of the administrative law judge shall be final and appealable under the Administrative Review Law.

(b-5) On or before July 2021, the Department of Transportation shall publish on its website a searchable database that allows for queries for each active construction contract by the name of a subcontractor or the pay item such that each pay item is associated with either the prime contractor or a subcontractor.

(c) This Section shall not be construed to in any manner diminish, negate, or interfere with the contractor-subcontractor or contractor-material supplier relationship or commercially useful function.

(d) This Section shall not preclude, bar, or stay the rights, remedies, and defenses available to the parties by way of the operation of their contract, purchase agreement, the Mechanics Lien Act, or the Public Construction Bond Act.

(e) State officials and agencies may adopt rules as may be deemed necessary in order to establish the formal procedures required under this Section.

(f) As used in this Section:

“Payment” means the discharge of an obligation in money or other valuable consideration or thing delivered in full or partial satisfaction of an obligation to pay. “Payment” shall include interest paid pursuant to this Act.

“Reasonable cause” may include, but is not limited to, unsatisfactory workmanship or materials; failure to provide documentation required by the contract, subcontract, or material purchase agreement; claims made against the Department of Transportation or the subcontractor pursuant to subsection (c) of Section 23 of the Mechanics Lien Act or the Public Construction Bond Act; judgments, levies, garnishments, or other court-ordered assessments or offsets in favor of the Department of Transportation or other State agency entered against a subcontractor or material supplier. “Reasonable cause” does not include payments issued to the contractor that create a negative or reduced valuation pay application or pay estimate due to a reduction of contract quantities or work not performed or provided by the subcontractor or material supplier; the interception or withholding of funds for reasons not related to the subcontractor’s or material supplier’s work on the contract; anticipated claims or assessments of third parties not a party related to the contract or subcontract; asserted claims or assessments of third parties that are not authorized by court order, administrative tribunal, or statute. “Reasonable cause” further does not include the withholding, offset, or reduction of payment, in whole or in part, due to the assessment of liquidated damages or penalties assessed by the Department of Transportation against the contractor, unless the subcontractor’s performance or supplied materials were the sole and proximate cause of the liquidated damage or penalty.

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