Immediate payment laws have been enacted in one form or another in almost every state. These laws are designed to ensure that contractors, subcontractors and suppliers on construction projects are paid within a reasonable time. Otherwise, interest penalties and attorneys’ fees may be awarded. However, these laws are strictly construed, and timing is of the essence for all parties.
Take, for example, a recent statement from the Ohio Court of Appeals. In this case, the court dismissed a material supplier’s claim for payment against a subcontractor because the supplier had not submitted its invoices in time to be included in the subcontractor’s request for payment.
Ohio’s private instant payment regulations
The Ohio Prompt Payment Act for Residential Construction Projects was enacted in 1993 to ensure timely payment to subcontractors and suppliers. For the specific provision as to the timing of such payments, see §4113.61(A):
“When a subcontractor or material supplier submits an application or a payment request or invoice for materials to a contractor in a timely manner to enable the contractor to include the application, request or invoice in the contractor’s own payment request submitted to an owner, the The Contractor shall pay for improvements to the…
(b) material supplier, an amount equal to all or part of the material invoice representing the materials supplied by the material supplier.”
For subs and suppliers this seems relatively easy. Once they submit an invoice, they expect to be paid by their hiring party within 10 days after receipt of payment. However, an often overlooked aspect of this is the requirement to submit an invoice “in time for the contractor to include the invoice in their wage claim”.
The Supplier files an immediate payment request against the Sub for late payments
The case in question is Broadway Concrete Invs., LLC v. Masonry Contracting Corp.
- Owner: Case Western Reserve University
- general contractor: Gilbane Building Co (Gilbane)
- Subcontractors: Platform Cements, Inc. dba Platform Agreement (Platform)
- Subcontractors: Masonry Contracting Corp. (MCC)
- Offerer: Broadway Concrete Investments, LLC dba Pompili Precast Concrete (Pompili)
Case Western Reserve University hired Gilbane as the general contractor for the construction of the Nord Family Greenway. The excavation and concrete work was contracted out to Platform, which in turn outsourced the precast concrete work to MCC. MCC’s materials supplier was Pompili on an order for just over $350,000.
As you can imagine, payment problems arose and Pompili eventually filed a lawsuit to recover an unpaid balance of $82,388.51. The lawsuit involved foreclosure on a mechanic’s lien, breach of contract and violations of the Ohio Prompt Payment Act. For the purposes of this article, we will focus on the immediate payment claims, among which Pompili alleged that her bills were not paid within the required 10-day period.
The trial court concluded that MCC had in fact broken the law. MCC had submitted a paid app for $50,000 In front Pompili had completed all work paid for in October 2016. Pompili had submitted her first bill for workshop drawings in January of the following year. Although MCC received payment for this work, Pompili was not paid until May.
The same sequence of events occurred for MCC’s second and third paid apps. The trial court reasoned that MCC had been “prepaid” for Pompili’s work, and failure to pay within 10 days of the invoice was a violation of the Prompt Pay Act. Pompili was awarded over $21,000 in penalty interest (18%) and over $100,000 in legal fees. Keep in mind that the unpaid amount claimed was only $82,000. MCC appealed the decision.
Lawsuit dismissed by Court of Appeals: Bills were not submitted before sub’s payment app
The Court of Appeals rejected the trial court’s “prepayment reasoning,” saying that the language of the law was clear and unambiguous.
There is three things that must happen to hold a subcontractor liable for a breach of timely payment:
- The supplier submits an invoice to a sub in good time so that the sub can include the invoice in their payment app
- The subcontractor receives the payment via the Pay app
- The subcontractor does not pay the supplier’s invoice within 10 days of receipt of payment in the Pay app
The 10-day payment period begins on the date the sub receives payment for an application that includes a supplier’s invoice. Under the court’s interpretation of the law, MCC was required to pay Pompili from payments received through a payment app that did not contain Pompili’s invoices.
The trial court’s finding that MCC defaulted on every payment to Pompili because it was prepaid for Pompili’s work violates the law, which clearly provides that the 10-day immediate payment obligation only begins to run after the subcontractor Received payment on a wage claim that included the invoice from the material supplier.
Therefore, the Court of Appeals reversed the trial court’s decision that MCC broke the law, along with the award of interest and attorneys’ fees under the law.
On-time bills are critical to timely payment claims in Ohio
As mentioned above, taking advantage of your state’s payment laws is a great way for contractors to ensure timely payment.
but There is no automatic entitlement to interest on arrears. Timely submission of invoices is crucial. If you think about it practically, if a particular invoice isn’t submitted before the contractor submits their pay app, the amount requested and paid is likely to be allocated elsewhere. And – as this case makes clear – the claim that the contractor was ‘prepaid’ for the work done as part of a pending invoice is a hopeless case.
From the perspective of a senior contractor, the only way to protect against claims under OH’s prompt salary requirements is with organized documentation. That’s how you know When The 10-day period begins to run when lower invoices are submitted.
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