Contractors Have Statutory Rights That They May Assert During Payment Disputes

Construction going on in the city.

A recurring problem in the construction industry is the failure of owners to issue timely payments.  The problem not only affects contractors but also the subcontractors and/or suppliers who have to wait for the money to pass through the project’s general contractor and/or a higher tier subcontractor.  Most contractors are aware of their right to secure payment of the monies owed through a mechanic’s lien (private work) or by filing a payment bond claim (public work or private work if applicable) but there are statutory rights of which contractors should be aware.

Connecticut General States § 42-158i defines a “construction contract” as “any contract for the construction, renovation or rehabilitation in this state on or after October 1, 1999, including any improvements to real property that are associated with such construction, renovation or rehabilitation, or any subcontract for construction, renovation or rehabilitation between an owner and a contractor, or between a contractor and a subcontractor or subcontractors, or between a subcontractor and any other subcontractor” but excludes contracts between a contractor and any local, state, or federal government, and it excludes contracts for building residential structures with less than 4 units.  Id.

According to § 42-158i, an owner is to pay its general contractor within 30 days from the date of receiving the contractor’s written request for payment; the contractor is to pay its subcontractors and/or suppliers within 30 days of having received payment from the owner, and said subcontractors and suppliers are to pay their subcontractors and/or suppliers within 30 days of having received payment from the contractor.  If any required payment is not issued as described above, a contractor, subcontractor or supplier has recourse under § 42-158i.

The first step required to invoke the rights made available by § 42-158i is for the party seeking payment to send the party that should have issued the payment a notice of nonpayment via registered or certified mail.  The party receiving the nonpayment notice then becomes liable for interest on the unpaid balance at a rate of 1% per month if payment is not made within 10 days of having received the notice.  In addition, the notice of nonpayment may include a demand that the party receiving the notice place the amount due in escrow.  If the funds are not placed in escrow, the party seeking payment is then entitled to recovery its reasonable attorneys’ fees in addition to interest and, if the a court finds that any payment was withheld in bad faith, then a ten (10%) penalty will be added to the amount due.

Lastly, § 42-158i provides subcontractors and suppliers with the right to make a demand for payment against the project owner.  The failure of the owner to pay such subcontractors and/or suppliers (assuming that the owner has also not paid its general contractor) allows the unpaid subcontractor or supplier to bring a lawsuit directly against the owner.  Such right is important if the general contractor is bankrupt or insolvent.

As stated above, § 42-158i does not apply to certain public work but there is a similar statute that does.  Connecticut General States § 49-41a requires contractors on public projects to pay their subcontractors and/or suppliers within 30 days of their receipt of payment from the owner, and said subcontractors and/or suppliers are required to pay their subcontractors and/or suppliers within 30 days of their receipt of payment from the contractor.  It is important to note that the legislature did not pass a requirement which stated when a public owner had to pay its contractor.  Similarly, § 49-41a does not provide subcontractors and/or suppliers with any rights against the public owner in the same manner that § 42-158i creates such rights against private owners.  § 49-41a does, however, have similar provisions to § 42-158i insofar as it entitles a party seeking payment to interest if payment is not within 10 days of a demand sent via registered or certified main and it entitles the party seeking payment to its attorneys’ fees should the party receiving such notice does not, upon demand, place the amount claimed due in escrow.

Sections 42-158i and 49-41a are rights created by statute which means that exact compliance with these statutes is required before these benefits described above would be enforced.  If you should require assistance with a nonpayment matter, please give me a call.

Scott Orenstein (860) 760-3317