Minnesota’s Prompt Payment Act
Minnesota’s prompt payment act 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
Penalties under Minnesota’s Prompt Payment Act
A contractor or subcontractor who receives payment but fails to pay their subcontractors can be required to pay 1.5% interest per month on any undisputed amount not paid on time. If an unpaid subcontractor sues for their money, they are entitled to recover their costs and attorneys’ fees.
Subcontractors who have not received prompt payment may suspend their work until payment is received.
Undisputed Services and Undisputed Amounts
The statute applies to a contractor’s failure to pay “undisputed amounts” for “undisputed services.” The statute does not define these terms. However, the Minnesota Court of Appeals has held that to win at trial, a subcontractor must prove that it requested payment for “undisputed services” and that the contractor failed to pay it. The subcontractor cannot win by just proving that it performed services. The services it performed must be undisputed.
Right to Suspend Work
If a subcontractor is not paid within 10 days, it has the right to suspend work until it is paid.
How Should Contractors Comply With Minnesota’s Prompt Payment Act
Provide Notice of Disputed Services
If there is a problem with a subcontractor’s work, a contractor should provide the subcontractor written notice of what services are disputed and what the subcontractor needs to do to fix them.
Consider Amending the Subcontract
Under the 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 were not 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 to avoid disputes later.
Contractors and subcontractors should call a construction lawyer with questions about Minnesota’s Prompt Payment Act.
The information provided in this article is for informational purposes only and does not constitute legal advice. Each situation is unique and the application of Minnesota law depends on the specific circumstances of each case.