The Massachusetts Prompt Payment Act sets out the time periods within which payment for private and public construction work must be paid. The Act helps contractors and sub-contractors have certainty about payment for work completed and facilitates cash flow for these projects.
The Prompt Pay Act divides the time limits within which payment must be made into two main periods:
- An initial period in which invoices can be examined and either accepted or rejected;
- A further period in which an invoice must be paid following the receipt of an invoice, assuming that the payment is approved.
The time periods vary depending whether the project being paid for is a private project or one for a Massachusetts government entity.
The Prompt Payment Act as it applies to private projects
The Prompt Payment legislation (Mass. Gen. Laws. 149 § 29E) applies to private projects valued under contract at $3 million dollars or more. Projects involving residential home construction of 4 or fewer units are not covered by the Act.
Property owners whose main contract is between themselves and a Prime Contractor have 15 days initially to inspect the invoice they have received and either approve it or reject it. If the owner approves the invoice, then payment to the contractor must be made within the next 45 days.
To confirm the total time between the receipt of an invoice to final date of payment is 15 (assuming the invoice is approved) + 45 days, i.e. 60 days in total.
The same rules apply to transactions between prime contractors and sub-contractors and between sub-contractors and any other service provider, including supply tendering. The only difference in these payment timings is that there is a possible extension for initial examination of the invoice of up to 7 days provided. At each transaction down the line, an extra 7 days for examination of the invoice is provided.
To confirm what has been said above, payment by a prime contractor to a sub-contractor must be made 45 days after approval of the invoice but 22 days are allowed to approve or reject the invoice.
Payment by a sub-contractor to a sub-sub contractor or supplier of materials (for example) must also be made within 45 days after approval of an invoice, but in this case an extra 7 days is allowed, so a total of 29 days are given to approve or reject the invoice.
Penalties if there is a breach of contract
A failure to make payment on time according to the Prompt Payment Act may mean that any amount outstanding will attract interest added to the bill, although the Act doesn’t specifically state that this is the default penalty. Interest is normally 12% annually or 1% monthly. Failure to make payment at all may mean that the party owed money may file lawsuit to recover the amount owed.
The Prompt Payment Act as it applies to Massachusetts public projects
The legislation that governs public projects within the state, whether they are contracted by the state government or another jurisdiction, such as a county, city or town council is Mass. Gen. Laws 30 §§39F to 39K. This is a separate piece of the Prompt Payment legislation from that which covers private projects and the scale of the projects it covers as well as time frames within which payments need to be made are different, too.
Public projects valued at $5,000 or more contracted by the Commonwealth government are covered by this legislation, while public projects contracted by smaller jurisdictions valued at $2,000 or more are covered by the legislation.
As prime contractors may issue invoices on a progressive time frame, there are rules about how long the public agency has to make payment. This is 30 days for the state government and 15 days for any smaller jurisdiction. Progress payments made by a prime contractor to a sub-contractor must be made immediately after an invoice has been issued.
Final payments to a prime contractor must be made within 65 days of receipt of the invoice. Prime contractors also have 65 days to make any final payments to sub-contractors.
Penalties if payment is not made on time
As with private projects, government entities will be charged interest if payments are late according to the rules set out by the Prompt Payment Act or unpaid. Interest is charged on any remaining unpaid amounts from the first day after payment was due. Interest is charged at a rate equivalent to the Federal Reserve discount rate plus an additional 3% annually.
Recent Appeals Court decision on failure to comply with rejection procedure as required by the Prompt Payment Act
The state’s Appeals Court upheld a decision by the Suffolk Superior Court in June 2022 regarding strict adherence to the rejection requirements for owners and upper tier contractors when issued with an invoice for payment. The Appeals Court decision affects rejections of invoices issued for private projects. Basically, the decision makes it imperative that owners and prime contractors must make payment within the stipulated 45 days after an invoice has been “deemed approved” even if they have rejected the invoice if the procedure used to reject the invoice did not adhere strictly to the format given in the Act.
The legislation makes it clear that rejections of invoices not only have to be made within the specified time frame (e.g. 15 days by owners following receipt of an invoice by a prime contractor), but made:
- in writing;
- explain why the invoice is being rejected from a contractual and factual basis; and
- certify that the rejection is being made in good faith.
The emphasis on the last of the criteria given in the list above, i.e. certification in good faith of a rejection, is the defining point of the Appeals Court’s ruling.
Despite the ruling, owners and upper tier contractors who have had to make payments because of a “deemed approval” due to not following the strict procedure for a rejection, may still be able to pursue money owed to them by the lower tier contractor through negotiation or by filing a lawsuit to recover the money.
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