New Prompt Pay Law Guarantees Quick Payments to Subcontractors, Engineers, and Architects

June 1, 2017

In Minnesota, construction projects come in all shapes and sizes, be it a small remodel of a kitchen or building a billion-dollar football stadium. Regardless of a construction project’s size, more often than not, subcontractors are critical in seeing the project through to completion. Minnesota Statute § 337.10 requires prompt payment to subcontractors working in the state.

Under Minn. Stat. § 337.10, a building and construction contract must require that prime contractor (often referred to as a “general contractor”) promptly pay any subcontractor or material supplier with ten days of receipt by the party responsible for payment for undisputed services. To put it in residential construction terms: suppose homeowners hire Company A as the general contractor for a residential remodeling project. As part of the remodeling project, Company A hires Company B to install a new roof at the homeowners’ home. Company B is a subcontractor. Fast forward to the end of the project, the homeowners are thrilled with the way it turned out and pay Company A (the general contractor) in full. Under Minnesota law, Company A has ten days to remit payment to Company B. Should Company A not pay, they are then subjected to penalties pursuant to the statutory language.

For purposes of prompt payment provisions in Minn. Stat. § 337.10, the term “subcontractor” casts a wide net. Minnesota Statute § 337.01 defines a “building and construction contract” as a contract for the design, construction, alteration, improvement, repair or maintenance of real property, highways, roads or bridges. Therefore, in a project where the prime contractor has hired either an engineer or architect to aid in the design and build, prime contractors must promptly remit payment pursuant to the statute for undisputed services. One important note: the entire statute is not directed at professionals. Minn. Stat. § 337.10, subd. 4, specifically carves out those providing professional services from the provisions of the progress payments and retainage language in the statute.

In July 2016, the state legislature modified Minn. Stat. § 337. 10. Prime contractors and subcontractors can now suspend work already in progress should there be no payment for undisputed work within ten days. This provides leverage for prime contractors and subcontractors alike. Going back to the residential construction example: suppose the contract between the homeowners and Company A calls for progress payments. Company B installs the roof and the homeowners are thrilled. However, the homeowners do not remit payment to Company A per the terms of their contract. Company A can suspend the project until the homeowners pay pursuant to the contract. If this hypothetical project is only half done, that leaves the homeowners with a choice of paying, as required by the contract and statute, or having a halfway completed construction project at their home. The July 2016 modifications also cap all retainage on building and construction contracts in Minnesota at five percent for either a public or private contract.

Construction contracts and their terms can be confounding. Minn. Stat. § 337.10 provides necessary protections for prompt payment but it’s imperative to know what kind of agreement you are entering into before any work begins. It is always best to seek counsel with any questions to fully understand the terms of your agreement.