State and Private Construction Contracts and State Procurement Contracts – Prompt Payment and Interest Requirements
Impact
The proposed legislation aims to enhance financial predictability for contractors and subcontractors by imposing clear deadlines for payments. This could reduce disputes related to cash flow in the construction industry, which is notorious for delays in payment. By enshrining these payment requirements into law, SB715 may significantly improve the financial stability of smaller subcontractors who often operate on tighter margins and rely heavily on timely payments from general contractors. The impact on state procurement contracts is also noteworthy, as the bill alters current regulations pertaining to interest on late payments, making them more favorable to contractors while seeking to hold public bodies accountable for timely payments.
Summary
Senate Bill 715, titled 'State and Private Construction Contracts and State Procurement Contracts – Prompt Payment and Interest Requirements', seeks to establish stricter regulations on payment timelines and interest accrual in construction contracts. Under this bill, a construction contract must include provisions that require owners to pay contractors within 45 days after receiving a proper invoice for completed work. If the payment is delayed beyond this period, interest will accrue at a rate of 2% per month starting 60 days after the invoice receipt. Similar requirements are set for payments from contractors to subcontractors, mandating payments within seven days of the contractor receiving payment from the owner for the subcontracted work.
Contention
While this legislation is met with general support from the construction sector, particularly from contractors and subcontractors, there may be contention among public bodies regarding the implications of mandatory interest payments on late invoices. Opponents could argue that the bill places additional financial burdens on state and local government budgets, which may not be well-equipped to handle interest obligations arising from delays. Moreover, there may be concerns about the administrative burdens placed on owners regarding the need to document and communicate withholding decisions in a more formal and timely manner. The balance between protecting contractors' interests and ensuring that public works projects remain financially sustainable for government entities will be a key point of debate.