As reported in Banker & Tradesman:
A new law requiring construction payments to be paid “promptly” has been passed, which advocates say is one of the most significant pieces of legislation affecting private construction since the reform of the state’s mechanic’s lien law in 1996. The bill was sponsored by the Associated Subcontractors of Massachusetts Inc. (ASM) and otherwise known simply as the “Prompt Pay Law.” It takes effect Nov. 8, 2010, 90 days after it was passed.
The law only covers construction projects over $3 Million, so the vast majority of residential home improvement projects won’t be affected.
The new law sets reasonable time periods for processing payments on a project, both routine progress payments and payments for change orders, which are often held up for indefinite periods. It also all-but-eliminates the use of controversial “pay if paid” terms to avoid having to pay altogether; and it provides the right to stop work for nonpayment without risking breach of contract.
By requiring prompt decisions on approval (or rejection) of payment requests, and timely payment of amounts due, the law will keep funds flowing on projects, according to a statement.
The new law is the result of a nearly five year effort by ASM to address chronic payment delays in construction.
Companies typically wait three months, often longer, to receive payment for their work, while continuing to buy materials and pay workers weekly.
Thirty-two other states currently have similar laws in place.
“Jobs and businesses were on the line here,” said Monica Lawton of Associated Subcontractors of Massachusetts. “This legislation provides a fair, common sense approach to ensure companies and workers get paid-and get paid on time.”
“This legislation will help prevent company closures and layoffs in the months ahead, and over the long term, will help restore fair dealing to an industry that has long been out of balance” said Richard Fisher of Beverly’s Red Wing Construction. “This is an important step to improve our industry, and help small businesses and their employees in this tough economy.”
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