In certain circumstances, Minnesota statutes specifically dictate when payment must be made and the penalties that may result in the event payment is not timely made. Knowing your rights and taking prompt action with regard to payment could make you one of the “lucky ones” who get paid for projects. Those who know and assert their rights to payment are more likely to be paid and paid promptly than those who are “patient.”
The following are summaries of several statutes pertaining to timely payment that are most relevant to contractors and subcontractors doing business in Minnesota.
§514.0—Non-Payment for Improvements to Real Property: Penalties and Remedies
Proceeds of payments received by a person in compensation for improvements to real property that were provided by a subcontractor or supplier shall be held in trust by the recipient for the benefit of the person who provided the work or materials for which payment was made. A person who receives payment for improvements to property that were provided by another but fails to pass on that payment to the person who provided the improvements may be guilty of theft and punishable under Minn. Stat. §609.52.
A subcontractor or supplier who fails to receive payment for improvements it contributed and for which payment was made by the owner to the general contractor is entitled to bring a civil claim against the general contractor under this statute to recover its costs and disbursements, including attorneys’ fees. Equitable tracing may also be available.
§337.10—Building and Construction Contracts: Prohibited Provisions
All building and construction contracts are deemed to require the prime contractor and all of its subcontractors to promptly pay any lower-tier subcontractors or suppliers within 10 days of receipt by the party responsible for payment for undisputed work. The contract shall also be deemed to require interest of 1.5% per month to be paid on any undisputed amount not timely paid. The party who prevails in a civil action to collect interest and penalties from a party who failed to make timely payment shall also be entitled to its costs and disbursements, including attorneys’ fees, in pursuing the action.
The above requirements do not apply to construction or improvements to residential real estate as defined in §326.83 Subd. 17 (a new or existing building constructed for habitation by one to four families) or improvements to attached single-family dwellings if they have fewer than 13 units per structure. Unless the construction contract provides otherwise, monthly progress payments must be made to a contractor for a building or construction project that is constructed over a period of longer than one (1) month. Unless otherwise stated in the contract, the owner may not withhold retainage of more than 5%. These requirements do not apply to construction or improvement of residential real estate.
A municipality must pay each vendor (including contractors) according to the terms of the contract or, if no contract terms apply, within the standard payment periods identified within the statute, depending upon the governing board’s meeting schedule. The payment periods will vary between 35 days from the date of receipt of the invoice and 45 days after receipt of the goods or services or the receipt of the invoice, whichever is later. The failure of a municipality to make timely payment results in an obligation to pay interest in the amount of 1.5% per month.
This statute also requires that each contract a municipality enters into with a contractor require the contractor to pay its subcontractors within 10 days of its receipt of payment from the municipality for undisputed services provided by each subcontractor. The contractor will be liable to the subcontractor for interest of 1.5% per month for late payment, and the subcontractor who prevails in a civil action to collect interest and penalties from the prime contractor will also be entitled to recover its costs and disbursements, including attorneys’ fees incurred in bringing the action.
§16A.1245—Prompt Payment to Subcontractors on State Agency Projects
Each state agency contract must require the prime contractor to pay its subcontractors within 10 days of the prime contractor’s receipt of payment from the state for the services provided by the subcontractor. This requirement does not apply in the event of a reasonable dispute regarding the quantity or quality of the subcontractor’s services.
The contract must also require that the prime contractor pay interest of 1.5% per month to the subcontractor on any undisputed amount not timely paid and due to the subcontractor. Lastly, the subcontractor that succeeds in pursuing a civil action against the contractor to collect the interest and penalties provided for under this statute is entitled to recover its costs and disbursements in said action, including its attorneys’ fees.
About the Author
John T. Trout is a partner with the law firm of Hellmuth & Johnson, PLLC, and concentrates his practice in the area of construction law, including construction and design defects, mechanic’s liens, bonds, delay and disruption, payment, insurance, and other disputes.
Trout offers a complimentary initial consultation. For questions or comments, contact him at 952-746-2127 or jtrout@hjlawfirm.com.
This information is for general reference only and should not be relied upon as legal advice. No one should rely on this communication as legal advice or to create an attorney-client relationship. If you are in need of legal advice, you should retain an attorney to assist you.
