What is Prompt Payment
Prompt payment can refer to a number of different things:
- The federal Prompt Pay Act
- An individual state’s prompt payment law
- A prompt payment claim made by a party on a construction project
The federal Prompt Pay Act requires federal construction contracts to include a clause obligating the prime contractor to pay subcontractors for “satisfactory” performance within seven days of receiving payment from the government.
Without the mandated clause, the timing of payment would generally be left up to the discretion of the direct contractor (through an agreement with the sub by contract) and payment would not necessarily be made as quickly. It’s worth noting, however, that despite the government-mandated payment timing clause, the government cannot be made a party to a dispute over late payments. Failure to pay within the appropriate time frame obligates the paying party to pay interest on the past-due amounts. It’s important to note, however, that the prompt payment obligations do not disallow withholding retainage.
In 2011-2012, the Obama Administration provided supplemental guidance regarding the payment of subcontractors vis-a-vis the Prompt Pay Act. This originally provided that the government should pay small business contractors within 15 days of receiving a proper invoice. This was subsequently expanded to cover payments to subcontractors by requesting agencies “accelerate payments to all prime contractors, in order to allow them to provide prompt payments to small business subcontractors.”
Additionally, the majority of states also have their own version of the federal Prompt Pay Act. (More information on state-level prompt payment below.)
Finally, a party dealing with a payment issue on a construction project where prompt payment applies may file a prompt payment claim.