Maryland Prompt Payment Guide and FAQs

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Maryland Prompt Payment Overview

Maryland Prompt Payment Requirements


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7
DAYS
Prime Contractors

For Prime Contractors, progress payment must be made within 7 days of dates for payment specified in contract for undisputed amounts. Final payment due within 30 days from occupancy permit or 30 days from when owner takes possession.


7
DAYS
Subcontractors

For Subcontractors, payment due within 7 days of payment being received from above.


7
DAYS
Suppliers

For Suppliers, payment due within 7 days of payment being received from above.


NO
Interest & Fees

Interest not set, presumably the judgment rate. Interest accrues from date court determines amounts were due. Attorneys' fees only available when the nonpaying party acted in bad faith by not paying undisputed amounts.

30
DAYS
Prime Contractors

For Prime (General) Contractors, payment is due within 30 days from date payment due under the contract or 30 days from receipt of invoice.


10
DAYS
Subcontractors

For Subcontractors, payment due within 10 days after payment received from above.


10
DAYS
Suppliers

For Suppliers, payment due within 10 days after payment received from above.


9%
/ YEAR
Interest & Fees

Interest at 9% year accruing from the 31st day after payment due.

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 Maryland

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

Private Projects

All private construction projects within the state of Maryland are governed by Md. Code. Real. Prop. §§9-301 et seq. The only exception to these rules are contracts for the construction and sale of single-family, residential dwellings.

Payment Deadlines for Private Projects

For payments from the property owner to the prime contractor, if the contract sets out specific times or dates for payment, progress payments must be made within 7 days after the payment date provided in the contract. As for final payments from the owner to the prime, the owner is required to release final payment within 30 days of either, the day the occupancy permit was granted, or the day the owner takes possession of the property; whichever is earlier. Once the prime contractor receives payment from the owner, they must pay their subcontractors and suppliers within 7 days of receipt. The same timeframe applies to payments from subs to their sub-subs and suppliers.

Penalties for Late Payment on Private Projects

The prompt pay statutes do provide a list of reasons when payment can be withheld. However, if payment is late, or unjustified, then interest penalties will be imposed. The rate is not specified in the prompt pay statutes, but it is presumably the judgment interest rate which is 10% per year (0.833%/month). The interest will begin accruing on the date the court determines that the amount was due. In addition, if the court determines the non-paying party acted in bad faith, the prevailing party may be awarded attorney fees.

Public Projects

Payment on all Maryland public works projects are governed by Md. State Fin. & Proc. §§15-101 et seq., and §15-226.

Payment Deadlines for Public Projects

The government entity that contracted the work must pay their prime contractors within 30 days of either the day the payment becomes due under the contract terms, or after receipt of a proper invoice; whichever is later. Once a prime contractor has received any type of payment from the public entity, they must pay their subcontractors and suppliers within 10 days. This 10-day turnaround applies to subcontractor payments to other lower-tiered sub-subs or suppliers.

Penalties for Late Payment on Public Projects

If any payments to the prime contractor are late, or otherwise wrongfully withheld, interest penalties will be imposed on the unpaid balance. If payment is more than 45 days later after the public entity received the invoice, interest will begin accruing at a rate of 9% per year, starting on the 31st day (i.e. the first day payment was late). This essentially offers a 14 day grace period to make payments without interest penalties accruing. There are no interest provisions for any other payments. Nor are there any provisions regarding attorney fees.

Maryland Prompt Payment Frequently Asked Questions

Maryland Prompt Payment Private Projects FAQs

What types of private projects are subject to Maryland’s prompt payment laws?

Maryland’s prompt payment act applies to all private construction projects within the state, with a few exceptions:

• Projects for the construction & sale of a single-family residential dwelling;
• Transactions under the MD Custom Home Protection Act; &
• Home improvement contracts by contractors licensed under the MD Home Improvement Laws.

When is the deadline for payments under Maryland’s prompt payment laws?

Owner to contractor

If the contract between the parties provides for specific dates or times of payment, then payments must be made no later than 7 days after the time/date specified. If the contract is silent, then payment must be made within 30 days after the occupancy permit is granted, or when the owner takes possession of the property; whichever is earlier.

Contractor to subs/suppliers

All other payments to subs and suppliers on private projects in Maryland must be made within 7 days after the hiring party receives payment.

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

Maryland does not specifically identify reasons for which payment may be withheld, so it is likely that the contract between the parties, and case law, will govern the particular reasons payment may be withheld; such as disputed work, or defective construction or materials.

If I am paid late according to the prompt payment statutes, can I obtain interest or other penalties?

Yes, however the amount of interest that may accrue is not specified. Presumably, it will be the judgment interest rate of 10% per year until payment has been made. Interest will accrue from the date the court determines that the amount was owed and due.

Furthermore, if the late paying party is found to have acted in bad faith, the court may also award attorney fees to the prevailing party.

Can I include prompt payment fees in my Maryland mechanics lien claim?

No, generally, the lien amount in Maryland is limited to the amount unpaid for labor and/or materials furnished to the project.

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 Lien along with a Prompt Payment Demand Letter 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

Maryland Prompt Payment Public Projects FAQs

What types of public projects are subject to Maryland’s prompt payment laws?

Maryland’s public prompt payment laws apply to all public works projects within the state.

When is the deadline for payments under Maryland’s prompt payment laws?

Entity to contractor

Payment from the public entity to the general contractor must be made within 30 days from the date payment becomes due under the contract or, 30 days after the public entity receives an invoice if later.

Contractor to subs/suppliers

All other payments down the contracting chain on public works projects in Maryland must be made within 10 days after the hiring party receives payment.

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

Maryland does not specifically identify reasons for which payment may be withheld, so it is likely that the contract between the parties, and case law, will govern the particular reasons payment may be withheld; such as disputed work, or defective construction or materials.

If I am paid late according to the prompt payment statutes, can I obtain interest or other penalties?

Late payments by the public procurement unit to the prime contractor accrue interest at a rate of 9% per year until payment is made. For subcontractors, there is no provision regarding interest penalties for subcontractors, however subs may be entitled to $100 per day penalties if proper notice is given to the procurement unit (see below).

Can I include prompt payment fees in my Maryland payment bond claim?

No, Maryland does not allow the inclusion of miscellaneous amounts in a public payment bond claim.

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

There is a procedure for subcontractors who aren’t paid according to the prompt payment provisions. A written notice should be sent that contains:

• The name of the contractor;

• Project identification

• Amount in dispute

• Itemized description on which the amount is based

• Explanation for any dispute concerning payment by the contractor; if known

Within 2 days of receipt, the public unit will reach out to the contractor, if it is determined that the amount is undisputed, the unit will instruct the contractor to pay. If payment still isn’t made, it can result in a $100 per day penalty.

For prime contractors, sending a prompt payment demand letter is generally the best way to encourage the public procurement unit to make payment. If payment isn’t forthcoming, a lawsuit may be necessary.

• See: How to Make a Claim Under Prompt Payment Laws

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Maryland Prompt Payment Statutes

Getting informed about prompt payment laws is important. An examination of Maryland’s 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. Maryland’s specific laws can be found in: Md. Code, Real Property, §§ 9-301 – 9-304, and Md. State Fin. & Proc. §§ 15-101 – 15-108, 15-226, and are reproduced below. Updated as of September 2021.

Prompt Payment Statute on Private Projects

§ 9-301. Definitions

(a) In this subtitle the following words have the meanings indicated.

(b)

(1) “Contract” means an agreement of any kind or nature, express or implied, for doing work or furnishing materials, or both, for or about a building.

(2) “Contract” includes an agreement for:

(i) The erection, repair, rebuilding, or improvement of a building;

(ii) The drilling and installation of wells to supply water;

(iii) The construction or installation of any swimming pool or fencing;

(iv) The grading, filling, landscaping, and paving of the premises;

(v) The installation of waterlines, sanitary sewers, storm drains, or streets; or

(vi) The erection, repair, rebuilding, or improvement of a wharf.

(c) “Contractor” means a person who has a contract with an owner.

(d) “Owner” means:

(1) The owner of the land; or

(2) An owner’s tenant for life or for years, provided the tenant enters into the contract with the contractor.

(e)

(1) “Subcontractor” means a person who has a contract with anyone except the owner or the owner’s agent.

(2) “Subcontractor” includes a supplier.

(f) “Undisputed amount” means an amount owed on a contract for which there is no good faith dispute, including any retainage withheld.

§ 9-302. Prompt payment

(a) Except for work done or materials furnished under a contract enumerated in § 9-305 of this subtitle, a contractor or subcontractor who does work or furnishes material under a contract shall be entitled to prompt payment under subsection (b) of this section.

(b)

(1) If the contract is with an owner, the owner shall:

(i) If the contract does not provide for specific dates or times of payment, pay to the contractor undisputed amounts owed under the terms of the written contract, within the earlier of:

1. 30 days after the day on which the occupancy permit is granted; or

2. 30 days after the day on which the owner or the owner’s agent takes possession; or

(ii) If the contract provides for specific dates or times of payment, pay to the contractor undisputed amounts owed within 7 days after the date or time specified in the contract.

(2) Paragraph (1) of this subsection does not apply to any contract between the contractor and:

(i) The State;

(ii) A county;

(iii) A municipal corporation;

(iv) A board of education; or

(v) A public authority or instrumentality.

(3) If the contract is not with an owner, the contractor or subcontractor shall pay undisputed amounts owed to its subcontractors within 7 days after receipt by the contractor or subcontractor of each payment received for its subcontractors’ work or materials.

§ 9-303. Remedies

(a) In this section, “undisputed amounts” includes any retention proceeds that exceed the amount authorized to be retained under § 9-304 of this subtitle.

(b) In addition to any other remedy provided under any other provision of law, a court of competent jurisdiction, for good cause shown may:

(1) Award any equitable relief for prompt payment of undisputed amounts that it considers necessary, including the enjoining of further violations; and

(2) In any action, award to the prevailing party:

(i) Interest from the date the court determines that the amount owed was due; and

(ii) Any reasonable costs incurred.

(c) If a court determines that an owner, contractor, or subcontractor has acted in bad faith by failing to pay any undisputed amounts owed as required under § 9-302 of this subtitle, the court may award to the prevailing party reasonable attorney’s fees.

§ 9-304. Retention proceeds

(a) In this section, “retention proceeds” means money earned but retained under the terms of a contract or subcontract:

(1) By an owner to guarantee performance of the contract by a contractor;

(2) By a contractor to guarantee performance of a subcontract by a subcontractor; or

(3) By a subcontractor to guarantee performance of a subcontract by another subcontractor.

(b) This section does not apply to:

(1) A contract in an amount less than $100,000; or

(2) A contract or subcontract for a project funded wholly or in part by or through the Department of Housing and Community Development.

(c) Except as provided in this section:

(1) If a contractor has furnished 100% security to guarantee the performance of a contract and 100% security to guarantee payment for labor and materials, including leased equipment:

(i) The retention proceeds under the terms of a contract may not exceed 5% of the contract price; and

(ii) The retention proceeds of any payment due under the terms of a contract from an owner to a contractor may not exceed 5% of the payment;

(2) The retention proceeds of any payment due under the terms of a contract from a contractor to a subcontractor may not exceed the percentage of retention proceeds from the owner to the contractor; and

(3) The retention proceeds of any payment due under the terms of a contract from a subcontractor to another subcontractor may not exceed the percentage of retention proceeds from the contractor to the subcontractor.

(d) This section may not be construed to prohibit the withholding of any amount due:

(1) From the owner to the contractor if the owner reasonably determines that the contractor’s performance under the contract provides reasonable grounds for withholding the additional amount;

(2) From the contractor to any subcontractor if the contractor reasonably determines that the subcontractor’s performance under the subcontract provides reasonable grounds for withholding the additional amount; or

(3) From a subcontractor to another subcontractor if the subcontractor determines that the other subcontractor’s performance under the subcontract provides reasonable grounds for withholding the additional amount.

(e) Undisputed retention proceeds retained by an owner under this section shall be paid within 90 days after the date of substantial completion, as defined by the applicable contract or subcontract.

§ 9-305. Exceptions

This subtitle does not:

(1) Affect the rights of contracting parties under Subtitle 1 of this title;

(2) Apply to a contract for the construction and sale of a single family residential dwelling;

(3) Apply to any transaction under the Custom Home Protection Act, Title 10, Subtitle 5 of this article; and

(4) Apply to a home improvement contract by a contractor licensed under the Maryland Home Improvement Law.

Prompt Payment Statute on Public Projects

§ 15-101. "Invoice" defined

In this subtitle, “invoice” means an invoice that meets the requirements of § 15-102 of this subtitle.

§ 15-102. Required information

A contractor who submits an invoice for a procurement contract shall include in the invoice

(1) the contractor’s federal employer’s identification number or Social Security number;

(2) the procurement contract or purchase order number or another adequate description of the procurement contract; and

(3) any documentation required by regulation or the procurement contract.

§ 15-103. Payment by State

It is the policy of the State to make a payment under a procurement contract within 30 days:

(1) after the day on which the payment becomes due under the procurement contract; or

(2) if later, after the day on which the unit receives an invoice.

§ 15-104. Interest on late payments

(a) Except as provided in § 15-105 of this subtitle, interest shall accrue at the rate of 9% per annum on any amount that:

(1) is due and payable by law and under the written procurement contract; and

(2) remains unpaid more than 45 days after a unit receives an invoice.

(b) Interest shall accrue beginning on the 31st day after:

(1) the day on which payment becomes due under a procurement contract; or

(2) if later, the day on which the unit receives an invoice.

§ 15-105. Interest not payable

A unit is not liable under § 15-104 of this subtitle for interest:

(1) unless within 30 days after the date on the State’s check for the amount on which the interest accrued, the contractor submits an invoice for the interest;

(2) if a contract claim has been filed under Subtitle 2 of this title;

(3) accruing more than 1 year after the 31st day after the unit receives an invoice; or

(4) on an amount that represents unpaid interest.

§ 15-106. Disputes by units on payment

The Governor shall resolve a dispute among units as to which unit is responsible for a delayed payment under a procurement contract.

§ 15-107. Duty of unit after semifinal payment

After a unit pays a semifinal estimate on a procurement contract, the unit shall place any retainage remaining in its possession in an interest bearing escrow account.

§ 15-108. Retainage

(a) This section does not apply to any procurement contract funded with tax-exempt financing.

(b)

(1) Subject to the requirements of this section, a contractor under a procurement contract that a unit awards for construction is entitled to have retainage under the procurement contract placed in an escrow account if the contractor:

(i) elects that procedure in the procurement contract in the space provided for that election; and

(ii) submits to the unit an escrow agreement that meets the requirements of subsection (c) of this section.

(2) The procurement contract shall identify the escrow agent.

(c) The escrow agreement shall:

(1) be on a form that the unit provides;

(2) include the complete address of both the escrow agent and the surety;

(3) authorize the unit to pay retainage to the escrow agent; and

(4) be signed by:

(i) the contractor;

(ii) the surety for the contractor; and

(iii) the escrow agent.

(d) On compliance with the requirements of subsection (b) of this section, the unit shall pay the retainage to the escrow agent unless:

(1) federal money is involved and application of this section would jeopardize timely recovery of that federal money; or

(2) retainage is withheld for:

(i) lack of progress on the part of the contractor; or

(ii) other violations by the contractor.

(e) In accordance with the escrow agreement, a contractor may require an escrow agent:

(1) to invest the retainage placed in the escrow account; and

(2) to the extent the contractor is entitled to retainage under subsection (f)(2)(ii) of this section, to pay the earnings on the investment to the contractor.

(f)

(1) Retainage may be released to the contractor only as directed by the unit.

(2) At the time of final payment, the unit shall direct the escrow agent to settle the escrow account by distributing money in the escrow account in the following order:

(i) to the unit for any claim it may have against the contractor under the procurement contract;

(ii) unless waived by the Board, to the Comptroller for any claim exceeding $50 against the contractor by the State, a unit, or a State controlled governmental entity; and

(iii) to the contractor.

§ 15-226. Policy Established; Disputes; Appeals

(a) In this section, “undisputed amount” means an amount owed by a contractor to a subcontractor for which there is no good faith dispute, including any retainage withheld.

(b) It is the policy of the State that, for work under a State procurement contract for construction:

(1) a contractor shall promptly pay to a subcontractor any undisputed amount to which the subcontractor is entitled; and

(2) a subcontractor shall promptly pay to a lower tier subcontractor any undisputed amount to which the lower tier subcontractor is entitled.

(c)

(1) A contractor shall pay a subcontractor an undisputed amount to which the subcontractor is entitled within 10 days of receiving a progress or final payment from the State.

(2) If a contractor withholds payment from a subcontractor, within the time period in which payment normally would be made, the contractor shall:

(i) notify the subcontractor in writing and state the reason why payment is being withheld; and

(ii) provide a copy of the notice to the procurement officer.

(d)

(1) If a subcontractor does not receive a payment within the required time period, the subcontractor may give written notice of the nonpayment to the procurement officer.

(2) The notice shall:

(i) indicate the name of the contractor, the project under which the dispute exists, and the amount in dispute;

(ii) provide an itemized description on which the amount is based; and

(iii) if known, provide an explanation for any dispute concerning payment by the contractor.

(e)

(1) Within 2 business days of receipt of written notice from a subcontractor, a representative of the unit designated by the procurement officer shall verbally contact the contractor to ascertain whether the amount withheld is an undisputed amount.

(2) If the representative of the unit decides that a part or all of the amount withheld is an undisputed amount, the representative of the unit shall instruct the contractor to pay the subcontractor the undisputed amount within 3 business days.

(3) The representative of the unit shall verbally communicate to the subcontractor the results of discussions with the contractor.

(4) If the contractor is instructed to pay the subcontractor and the subcontractor is not paid within the time instructed under paragraph (2) of this subsection, the subcontractor may report the nonpayment in writing to the procurement officer.

(f)

(1) If the subcontractor notifies the procurement officer under subsection (e)(4) of this section that payment has not been made, the representative of the unit shall schedule a meeting to discuss the dispute with the unit’s project manager, the contractor, and the subcontractor:

(i) at a time and location designated by the representative of the unit; but

(ii) not later than 10 days after receiving notice from the subcontractor under subsection (e)(4) of this section.

(2) The purpose of the meeting is to establish why the contractor has not paid the subcontractor in the required time period.

(3) The representative of the unit shall require the parties to provide at the meeting any information that the representative believes necessary to evaluate the dispute.

(4) If the representative of the unit determines that the contractor is delinquent in payment of an undisputed amount to the subcontractor, further progress payments to the contractor may be withheld until the subcontractor is paid.

(5) If payment is not paid to the subcontractor within 7 days after the representative of the unit determines that the contractor is delinquent in paying the subcontractor under this subsection, the representative shall schedule a second meeting to address the dispute:

(i) at a time and location designated by the representative of the unit; but

(ii) not later than 5 days after the close of the 7-day period.

(6) If, at the completion of the second meeting, the representative of the unit determines that the contractor continues to be delinquent in payments owed to the subcontractor, the representative:

(i) shall order that further payments to the contractor not be processed until payment to the subcontractor is verified;

(ii) may order that work under the contract be suspended based on the failure of the contractor to meet obligations under the contract; and

(iii) subject to paragraph (7) of this subsection, may require that the contractor pay a penalty to the subcontractor, in an amount not exceeding $100 per day, from the date that payment was required under subsection (e)(2) of this section.

(7) A penalty may not be imposed under paragraph (6)(iii) of this subsection for any period that the representative of the unit determines the subcontractor was not diligent in reporting nonpayment to the procurement officer.

(g)

(1) A contractor or a subcontractor may appeal a decision under subsection (f)(6) of this section to the procurement officer.

(2) The contractor shall comply with the procurement officer’s decision.

(h) An act, failure to act, or decision of a procurement officer or a representative of a unit concerning a payment dispute between a contractor and subcontractor or between subcontractors under this section may not:

(1) affect the rights of the contracting parties under any other provision of law;

(2) be used as evidence on the merits of a dispute between the unit and the contractor or the contractor and subcontractor in any other proceeding; or

(3) result in liability against or prejudice the rights of the unit.

(i) A decision of a procurement officer or a representative of the unit designated by the procurement officer under this section is not subject to judicial review or the provisions of Part III of this subtitle.

(j)

(1) A unit shall include in each State procurement contract for construction a provision:

(i) governing prompt payment to subcontractors; and

(ii) requiring inclusion of a similar provision in each subcontract at any tier.

(2) The contract provision shall establish procedures and remedies for the resolution of payment disputes similar to the process and remedies prescribed in subsections (c) through (g) of this section.

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