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Maine’s Prompt Payment Act: Hidden Traps for the Unwary

Maine’s Prompt Payment Act strictly enforces owners’, contractors’ and subcontractors’ payment obligations.

For owners, the Act’s requirements are fairly straightforward. An owner must pay its contractor in accordance with the terms of its contract. If the contract does not include payment deadlines, the owner must pay the contractor’s invoices 20 days after the end of each billing period, or 20 days after delivery of each invoice, whichever is later. If payments to the contractor are subject to retainage, the owner must release those funds within 30 days after final acceptance of the work.

For contractors and subcontractors, however, the Act’s payment requirements are a bit more complicated. Generally speaking the Act provides that contractors and subcontractors must pay their subcontractors and material suppliers “strictly in accordance” with the parties’ contracts. Many contractors and subcontractors, however, are surprised to learn that there are instances where the Act will override the terms of their contracts.

For instance, the Act requires that, regardless of any other agreement or contract, when a contractor or subcontractor receives a payment from the owner, it must pay its downstream subcontractors and suppliers (the full or proportional amount owed) 7 days after receipt of that payment, or 7 days after receipt of an invoice from its downstream subcontractor or supplier, whichever is later. In other words, if a contractor or subcontractor receives funds that are intended to pay for work performed by its subcontractors and suppliers, the contractor or subcontractor cannot delay in releasing those funds, even if the contract states that payment is not yet due. The Act ensures that funds flow downstream to the parties performing work.

In addition, if a contractor or subcontractor fails to make certain disclosures, the parties’ agreed-upon payment deadlines may be overridden. Under the Act, prior to entering into a contract, a contractor or subcontractor must disclose to its’ own subcontractors and suppliers the due date for receipt of payments from the owner. If a contractor or subcontractor fails to make this disclosure, payments to the downstream subcontractors and suppliers will be due 20 days after the end of each billing period, or 20 days after delivery of each invoice, whichever is later. In the event of a non-disclosure, the 20 day payment deadlines will be imposed regardless of any other agreement.

Lastly, regardless of any other agreement, contractors and subcontractors must pay their own subcontractors and suppliers retainage within 7 days after receipt of retainage from the owner or upstream contractor. Again, the Act ensures that funds flow downstream in a timely fashion.

In short, even contractors or subcontractors that make payments in accordance with the terms of their contracts may find themselves in violation of the Act. A failure to disclose certain payment deadlines, or the receipt of payments from the owner, may require contractors and subcontractors to make payments earlier than provided for in their contracts.

Owners, contractors, and subcontractors must be sure to understand and comply with the Act. A failure to make payments in accordance with the Act can result in an award of attorney’s fees should the matter proceed to arbitration or litigation, and late payments will be subject to an enhanced interest rate (1% per month plus the standard post-judgment interest rate provided under 14 M.R.S. § 1602-C). An owner, contractor, or subcontractor is allowed to withhold payment so long as the amount withheld equals the value of any good faith claim against the invoicing party (e.g. delay claims, defective work claims, 3rd party claims, etc.), but must otherwise pay all other amounts not in dispute in accordance with the Act.

Perkins Thompson regularly helps owners, contractors, subcontractors, and material suppliers with Prompt Payment Act claims. If you would like to speak with the firm about a Prompt Payment Act issue, you can send an e-mail to Joe Talbot or call him directly at 207-774-2635.