The Prompt Payment Statute
Minnesota’s prompt payment statute provides that all construction contracts are deemed to require a prime contractor and all subcontractors to promptly pay their subcontractors and material suppliers within ten days of receipt of payment for undisputed services. Prior to its amendment, the statute penalized a party failing to make a prompt payment by requiring them to pay 1.5% interest, per month, on the unpaid amount. The statute was amended in 2016 to allow subcontractors who haven’t received prompt payment to suspend their work until payment is received. The statute also limits retainage to 5%.
How Should Contractors Comply With The Statute?
Contractors would be wise to closely review and amend their subcontracts to limit the impact of these changes. Under the revised statute, a subcontractor has an indefinite right to suspend work. The statute leaves unresolved several issues, including (a) what happens if the subcontractor’s suspension is wrongful (because they weren’t entitled to the payment or because it was disputed) and (b) what is the subcontractor’s entitlement to payment for the remaining work under the subcontract while work is suspended? Also, unresolved is whether a contractor may terminate a subcontractor who suspends work under this section.
These issues should be resolved in the subcontract so as to avoid disputes later. A contractor who doesn’t appropriately amend their subcontract could find themselves liable for paying a subcontractor their entire contract amount even though the subcontractor suspended work.
This article is for informational purposes only and does not constitute legal advice.