Alabama Prompt Payment Overview

Alabama’s prompt payment statutes set forth specific timeframes when general contractors, subcontractors, suppliers, and others involved with a construction project must be paid. This page provides an overview of these regulations, and addresses some frequently asked questions related to the Alabama prompt payment laws.

Alabama Prompt Payment for Private Projects FAQs

Alabama Prompt Payment Frequently Asked Questions

Do I Have To Send A Letter or File Anything To Qualify For Prompt Payment Penalties or Remedies in Alabama?

If the Prompt Pay Act applies, the interest provided for by the statute is collectable if the payment is made late, if it is not late or withheld for one of the valid reasons and the party to be paid has submitted a request for payment or invoice. In order to recover attorney fees, the party must prevail in a suit to recover the late payment under the Act.

Back to top Can I Include Prompt Payment Fees In My Alabama Mechanics Liens Claim or Bond Claim?

No. Alabama law does not allow for the recovery of miscellaneous amounts in a mechanics lien.

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

If payment is received late, and none of the valid reasons for late or withheld payment apply, the party to be paid is entitled to recover the interest allowed by law. As a practical matter, it may be difficult to recover amounts in excess of the contractually due amount without filing suit.

Further, while a party is not able to waive the right to receive interest prior to the payment becoming due, the right to receive the interest allowed for a late payment may be waived on or after the date the payment is due.

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

Payment may be withheld in Alabama for the following reasons:

  1. Unsatisfactory job progress;
  2. Defective construction not remedied;
  3. Disputed work;
  4. Third party claims filed or reasonable evidence a claim will be filed;
  5. Failure of the contractor, subcontractor or sub-subcontractor to make timely payments for labor, equipment or materials;
  6. Property damage to the owner, contractor or subcontractor; and/or
  7. Reasonable evidence that the contract, subcontract or sub-subcontract cannot be completed for the unpaid balance of the contract.

An owner is required to notify a contractor in writing within fifteen (15) days of receipt of a request for payment if that request is disputed. A contractor, subcontractor or sub-subcontractor must give written notice to a party requesting payment within five (5) days if the request is disputed. In the event of a bona fide dispute over the amount due, an amount not greater than two times the amount in dispute may be withheld.

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 and prompt payment demand is generally the best method for encouraging parties to make payment.

Alabama Prompt Payment for Public Projects FAQs

Alabama Prompt Payment FAQ

Do I Have To Send A Letter or File Anything To Qualify For Prompt Payment Penalties or Remedies in Alabama?

If the payment is not in dispute, the only prerequisite for the prompt pay rules (including interest at the rate currently charged by the state) to apply is the “full execution” of the obligations under the contract and the presentation of a proper invoice.

There is no provision for a prevailing party to be awarded attorney fees pursuant to the public prompt pay statutes in Alabama.

Can I Include Prompt Payment Fees In My Alabama Mechanics Liens Claim or Bond Claim?

No. Alabama law does not allow for the recovery of miscellaneous amounts in a bond claim.

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

If payment is received late, and none of the valid reasons for late or withheld payment apply, the party to be paid is entitled to recover the interest allowed by law. As a practical matter, it may be difficult to recover amounts in excess of the contractually due amount without filing suit.

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

Payment may be withheld in Alabama for the following reasons:

  1. Unsatisfactory job progress;
  2. Defective construction not remedied;
  3. Disputed work;
  4. Third party claims filed or reasonable evidence a claim will be filed;
  5. Failure of the contractor, subcontractor or sub-subcontractor to make timely payments for labor, equipment or materials;
  6. Property damage to the owner, contractor or subcontractor; and/or
  7. Reasonable evidence that the contract, subcontract or sub-subcontract cannot be completed for the unpaid balance of the contract.

For rules related to retainage, see the retainage resources.

Alabama Prompt Payment Statutes

Getting informed about prompt payment laws is important. An examination of Alabama’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. Alabama’s specific laws can be found in: Ala. Code §§ 8-29-1 – 8-29-8 and are reproduced below.

Prompt Payment Statute on Private Projects

8-29-1: Definitions

For the purpose of this chapter, the following words have the following meanings:

(1) CONTRACTOR. Any person, individual, firm, corporation, partnership, or other legal entity who contracts with an owner to improve real property or perform construction services for an owner.

(2) IMPROVE. To build, effect, alter, repair, or demolish any improvements upon, connected with, or on, or beneath the surface of any real property; to excavate, clear, grade, fill, landscape any real property; to construct driveways and roadways; to furnish materials, including trees and shrubbery, for any of these purposes; or to perform any labor upon these improvements.

(3) IMPROVEMENT. All or any part of any building, structure, erection, alteration, demolition, excavation, clearing, grading, filling, or landscaping, including trees and shrubbery, driveways, and roadways on real property.

(4) OWNER. Any person, individual, firm, corporation, partnership, or other legal entity who has an interest in the real property improved and for whom an improvement is made, who either directly or by agent ordered the improvement to be made.

(5) REAL PROPERTY. The real estate that is improved, including lands, leaseholds, tenements, and improvements placed on the real property.

(6) SUBCONTRACTOR. Any person, individual, firm, corporation, partnership, or other legal entity who has contracted to furnish labor or materials to, or has performed labor or supplied materials for a contractor in connection with a contract to improve real property.

(7) SUB-SUBCONTRACTOR. Any person, individual, firm, corporation, partnership, or other legal entity who has contracted to furnish labor or materials to, or has performed labor or supplied materials for a subcontractor in connection with a contract to improve real property.

8-29-2: Performance in Accordance with contract Entitles Contractor or Subcontractor to Payment

Performance by a contractor, subcontractor, or sub-subcontractor in accordance with the provisions of his or her contract entitles them to payment from the party with whom they contract. All contracts between parties require a date of payment.

8-29-3: Timely Payments to Contractors and Subcontractors; Noncompliance with Chapter; Percentage of Retainage on Payments

(a) When a contractor has performed pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials, to the owner or owner’s representative, the owner shall timely pay the contractor by mailing via first class mail or delivering the amount of the pay request or invoice in accordance with the payment terms agreed to by the owner and the contractor, the agreed upon payment terms must be specified in all contract documents, but if payment terms are not agreed to, then within 30 days after receipt of the pay request or invoice.

(b) When a subcontractor has performed pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials to a contractor in sufficient time to allow the contractor to include the application, request, or invoice in his or her own pay request submitted to an owner, the contractor shall timely pay to the subcontractor in accordance with the payment terms agreed to by the contractor and subcontractor, but if payment terms are not agreed to, then within seven days of receipt of payment from owner by mailing via first class mail or delivering the amount received for the subcontractor’s work and materials based on work properly completed or service properly provided under the contract.

(c) When a sub-subcontractor has performed labor or supplied materials for a subcontractor pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials to a subcontractor in sufficient time to allow the subcontractor to include the application, request, or invoice in his or her own pay request submitted to a contractor, the subcontractor shall timely pay the sub-subcontractor in accordance with the payment terms agreed to by the subcontractor and sub-subcontractor but if payment terms are not agreed to, then within seven days of receipt of payment from contractor by mailing via first class mail or delivering the amount received for the sub-subcontractor’s work and materials based on work properly completed or service properly provided under the contract.

(d) If the owner, contractor, or subcontractor does not make payment in compliance with this chapter, the owner, contractor, or subcontractor shall be obligated to pay his or her contractor, subcontractor, or sub-subcontractor interest at the rate of one percent per month (12% per annum) on the unpaid balance due.

(e) A contractor who receives a payment under subsection (a) or otherwise, from an owner in connection with a contract shall pay each of its subcontractors the portion of the owner’s payment to the extent of that subcontractor’s interest in the owner’s payment. The payment shall include interest, if any, that is attributable to work properly performed or materials suitably stored by that subcontractor if payment for stored materials is provided for in the contract. The payment required by this subsection shall be made not later than the seventh day after the date the contractor receives the owner’s payment.

(f) The percentage of retainage on payments by the contractor to the subcontractor shall not exceed the percentage of retainage on payments made by the owner to the contractor. Any percentage of retainage on payments made by contractor to the subcontractor that exceeds the percentage of retainage on payments made by the owner to the contractor shall be subject to interest to be paid by the contractor to the subcontractor at the rate of one percent per month (12% per annum).

(g) The percentage of retainage on payments by the subcontractor to the sub-subcontractor shall not exceed the percentage of retainage on payments made by the contractor to the subcontractor. Retainage on payments made by the subcontractor to the sub-subcontractor that exceeds the percentage of retainage on payments made by the contractor to the subcontractor shall be subject to interest paid at the rate of one percent per month (12% per annum).

(h) For the purposes of this chapter, retainage means that money, or other security as agreed to by the parties to a construction contract, earned by the contractor, subcontractor or lower tier sub-subcontractor, or supplier for work properly performed or materials suitably stored if payment for stored materials is provided for in the contract, which has been retained by the owner conditioned on final completion and acceptance of all work in connection with a project or projects by the contractor, subcontractor or lower tier sub-subcontractor, or supplier.

(i) A construction contract on any project in this state may provide for the owner’s withholding of retainage from payments to its contractor for work performed by that contractor on a construction project. There shall be retained not more than 10 percent of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site, and after 50 percent completion has been accomplished, no further retainage shall be withheld. If an owner withholds an amount greater than that allowed by this subsection, the owner shall be liable to the contractor for interest accruing on the excess amount withheld at the rate of one percent per month. Nothing herein is intended to limit or alter the paying party’s right to withhold or not approve payment on grounds set forth in the parties’ contract or the grounds set forth in Section 8-29-4 or otherwise for work not properly performed or payment not earned; rather, this section is intended only to establish a maximum amount of retainage, establish the timing for release of retainage, and provide for the payment of interest for improperly held retainage.

(j) A construction contract on any project in this state may provide for the contractor’s withholding of retainage from payments to its subcontractors for work performed by the subcontractors on a construction project. There shall be retained not more than 10 percent of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site, and after 50 percent completion has been accomplished, no further retainage shall be withheld. If a contractor withholds an amount greater than that allowed by this subsection, the contractor shall be liable to the subcontractor for interest accruing on the excess amount withheld at the rate of one percent per month.

(k) A construction contract on any project in this state may provide for the subcontractor’s withholding of retainage from payments to its sub-subcontractors or material suppliers for work performed by such sub-subcontractors or material suppliers on a construction project. There shall be retained not more than 10 percent of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site, and after 50 percent completion has been accomplished, no further retainage shall be withheld. If a subcontractor withholds an amount greater than that allowed by this subsection, the subcontractor shall be liable to the sub-subcontractor or material supplier for interest accruing on the excess amount withheld at the rate of one percent per month.

(l)(1) The owner shall release and pay retainage to the contractor for work completed on any construction contract no later than 60 days after the completion of the contractor’s work defined in its contract with the owner, or no later than 60 days after substantial completion of the project, whichever occurs first, and in both events, with all necessary certificates of occupancy having been issued. The contractor shall release and pay retainage to its subcontractors for work completed pursuant to the terms of this chapter.
(2) For the purposes of this subsection, substantial completion means the stage in the progress of the project when the project or designated portion thereof is sufficiently complete in accordance with the contract documents with all necessary certificates of occupancy having been issued so that the owner may occupy or utilize the project for its intended purpose.

(m) The provisions of subsections (h) through (l) shall not apply to any construction project for or by an electric utility regulated by the Public Service Commission.

(n) Nothing herein limits or alters the paying party’s right to withhold or not approve payment on grounds set forth in the party’s contract or the grounds set forth in Section 8-29-4 or otherwise for work not properly performed or payment not earned; rather, this section is intended only to establish a maximum amount of retainage, establish the timing for release of retainage, and provide for the payment of interest for improperly held retainage. Also, the paying party may condition payment on the receipt of a full release of any lien of the contractor, subcontractor, or sub-subcontractor for the amount of work being paid.

(o) All loans and loan proceeds related to a construction project, and the disbursement and use thereof, are governed solely by the terms of the documents evidencing and securing the loan, and contractors, subcontractors, and sub-subcontractors have no lien or rights in any such loan, loan proceeds, or the disbursement or use thereof.

8-29-4: Withholding Application and Certification for Payment; Witholding Payment; Notice

(a) Nothing in this chapter shall prevent the owner, contractor, or subcontractor from withholding application and certification for payment for any of the following reasons if there is a bona fide dispute over one or more of the following:

(1) Unsatisfactory job progress.

(2) Defective construction not remedied.

(3) Disputed work.

(4) Third party claims filed or reasonable evidence that a claim will be filed.

(5) Failure of the contractor, subcontractor, or sub-subcontractor to make timely payments for labor, equipment, and materials.

(6) Property damage to owner, contractor, or subcontractor.

(7) Reasonable evidence that the contract, subcontract, or sub-subcontract cannot be completed for the unpaid balance of the contract or contract sum.

(b) In the event that there is a bona fide dispute over all or any portion of the amount due on a progress payment from the owner, contractor, or subcontractor then the owner, contractor, or subcontractor may withhold payment in an amount not to exceed 2 times the disputed amount.

(c) An owner is required to notify a contractor in writing within 15 days of receipt of any disputed request for payment. A contractor, subcontractor and sub-subcontractor is required to provide written notification within 5 days of disputed request for payment or notice of disputed request for payment.

8-29-5: Waiver of Right to Receive Interest

A party may not waive the right to receive interest before a payment is due under a contract subject to this section. A party may waive the interest due on any late payment on or after the date the payment is due under Section 8-29-3.

8-29-6: Civil Action

A contractor, subcontractor, or sub-subcontractor may file a civil action solely against the party contractually obligated for the payment of the amount claimed to recover the amount due plus the interest accrued in accordance with this chapter. If the court finds in the civil action that the owner, contractor, or subcontractor has not made payment in compliance with this chapter, the court shall award the interest specified in this chapter in addition to the amount due. In any such civil action, the party in whose favor a judgement is rendered shall be entitled to recover payment of reasonable attorneys’ fees, court costs and reasonable expenses from the other party.

8-29-7: Exemptions

This chapter does not apply to the following:

(1) Residential homebuilders.

(2) Improvements to real property intended for residential purposes which consist of 16 or fewer residential units.

(3) Contracts, subcontracts, or sub-subcontracts in the amount of ten thousand dollars ($10,000) or less.

(4) Contracts with the state or local governments of the State of Alabama.

8-29-8: No Amendment of Existing Laws

This chapter does not amend or modify existing laws relating to mechanics and materialmen liens and shall not be applicable in civil actions pursuant to Title 35, Chapter 11, Division 8.

Prompt Payment Statute on Public Projects

41-16-3: Timely Execution of State Contracts Required

(a) Whenever the State of Alabama is a party to any contract, the contract shall be executed by all parties in a timely fashion. When a party to a contract, other than the state, has fully executed the responsibility under the contract and there remains only the payment of funds by the state, payment shall be made in a timely manner. If the amount due by the state is not in dispute, payment shall be made within 30 days after the other party has completed his or her portion of the contract and presented a proper invoice. If the amount payable is not paid within 30 days, interest on the amount shall be charged. A party who receives a payment from the state in connection with a contract shall pay each of its subcontractors or sub-subcontractors the portion of the state’s payment to the extent of that subcontractor’s or sub-subcontractor’s interest in the state’s payment in accordance with the payment terms agreed to by the contractor and the subcontractor, but if payment terms are not agreed to, then within seven days after receipt of payment from the state. The payment shall include interest, if any, that is attributable to work performed by the subcontractor or sub-subcontractor. The interest rate shall be the legal amount currently charged by the state. Interest shall be paid from the same fund or source from which the contract principal is paid. Nothing in this subsection shall prevent the state, contractor, or subcontractor from withholding payments if there is a bona fide dispute over one or more of the following:

(1) Unsatisfactory job progress.

(2) Defective construction not remedied.

(3) Disputed work.

(4) Third party claims filed or reasonable evidence that a claim will be filed.

(5) Failure of the contractor, subcontractor, or sub-subcontractor to make timely payments for labor, equipment and materials.

(6) Property damage to owner, contractor, or subcontractor.

(7) Reasonable evidence that the contract, subcontract, or sub-subcontract cannot be completed for the unpaid balance of the contract or contract sum.

(b) In the event that there is a bona fide dispute over all or any portion of the amount due on a progress payment from the owner, contractor, or subcontractor then the owner, contractor, or subcontractor may withhold payment in an amount not to exceed two times the disputed amount.

(c) An owner is required to notify a contractor in writing within 15 days of receipt of any disputed request for payment. A contractor, subcontractor, and sub-subcontractor is required to provide written notification within five days of disputed request for payment or notice of disputed request for payment.

(d) The amount of retainage withheld by the contractor to the subcontractor or the subcontractor to the sub-subcontractor shall not exceed the retainage withheld by the state unless interest is applied to the withheld amount.