District of Columbia Enacts Construction Prompt Payment Statute
July 29, 2014
On August 2, 2013, the Council of the District of Columbia, along with the Mayor of the District of Columbia, enacted legislation known as the “Private Contractor and Subcontractor Prompt Payment Act of 2013” (the “Act”). The Act has an effective date of November 5, 2013 and applies to all contracts entered into on or after October 1, 2013. The Act was created “[t]o establish new private contractor and subcontractor prompt payment laws, to establish time requirements for owners to pay contractors when the contract does not provide for specific dates and times of payment, to establish time requirements for owners to pay contractors when the contract does provide for specific dates and times of payment, to impose an interest penalty and assess reasonable attorney fees on an owner for failure to make prompt payments to a contractor, to establish time requirements for contractors to pay subcontractors, and to impose an interest penalty and assess reasonable attorney fees on a contractor for failure to make prompt payments to a subcontractor.“ See District of Columbia Council Bill 200145.
The Act itself is codified at D.C. Code § 27-131 through § 27-136 (2014). D.C. Code § 27-131 contains the definitions of “contract,” “contractor,” “subcontractor,” “owner,” and “undisputed amount.” D.C. Code § 27-132 pertains to contracts between an owner and a contractor and, when there are no specified dates and times of payment provided in the contract, the owner is required to pay the contractor undisputed amounts owed within the earlier of “(1) 15 days after the day on which the occupancy permit is granted; (2) 15 days after the day on which the owner or the owner’s agent takes possession; or (3) 15 days after an owner receives a contractor’s payment request.” Id. As for contracts between an owner and a contractor that does include specified dates and times of payment, the owner is required to pay the contractor “undisputed amounts owed within 7 days after the date or time as written in the contract.” Id. D.C. Code § 27-133 contains the remedy procedures, allowing for the recovery of interest for untimely payments of undisputed amounts along with recovery of attorneys’ fees “[i]f a contractor prevails in a civil action to collect interest penalties from an owner.” Id.
As for subcontractors, D.C. Code § 27-134 provides that, “[i]f a contract is between a contractor and subcontractor, or between a first-tier subcontractor and a second-tier subcontractor, the contractor or subcontractor shall pay undisputed amounts owed to its subcontractor within 7 days after receipt by the contractor or subcontractor of each payment received for its subcontractors’ work or materials.” Id. In addition, the Act goes further and addresses “pay-when-paid” and “pay-if-paid” clauses, stating that “conditions of payment to the subcontractor on receipt by the contractor of payment from the owner may not abrogate or waive the right of the subcontractor to (1) Claim a mechanics' lien; or (2) Sue on a contractor's bond” and that “[a]ny provision of a contract made in violation of [this subsection] is void as against the public policy of the District.” Id. D.C. Code § 27-135 provides the identical remedies to subcontractors afforded to contractors above by allowing for the recovery of interest for untimely payments of undisputed amounts along with recovery of attorneys’ fees “[i]f a subcontractor prevails in a civil action to collect interest penalties from a contractor or first-tier subcontractor.” Id.
The Act is quite similar, and in many sections identical, to similar legislation enacted in Maryland years ago. See Md. Real Prop. Code Ann. § 9-302 (2013) (prompt payment); Md. Real Prop. Code Ann § 9-113 (2013) (prohibited provisions in executory contracts). By virtue of this legislation, contractors and subcontractors in the District of Columbia have a new tool in their arsenal to expedite payments on D.C. projects.