Despite unprecedented financial challenges, public and private owners must still pay their bills on time. Contractors and subcontractors should not be unfairly burdened by having to wait for payment. This is a good time to remind Minnesota contractors of their rights and obligations under Minnesota's prompt payment laws.
Minnesota has adopted prompt payment laws that require all state agencies and local governments (including cities, counties, towns, joint powers boards, school boards and the Metropolitan Council) to pay simple interest of 1.5% per month, or 18% per year, on overdue amounts. The laws apply to construction contracts and subcontracts. Minnesota has also adopted a prompt payment law requiring contractors to pay this same "super-interest" to their subcontractors and suppliers on both public and private projects. The three laws, though similar, have their differences.
State Contracts. State agencies must pay interest on all undisputed billings that are not paid within 30 days following receipt of the invoice, merchandise or service, whichever is later. Interest does not accrue on disputed bills as long as the dispute is settled within 30 days after the bill becomes overdue; and, upon resolution of the dispute, the agency must pay accrued interest on all proper invoices for which payment was not timely received. Importantly, state agencies are not required to pay interest unless the vendor invoices them for interest. A contractor who prevails in a lawsuit to collect the interest penalty is entitled to recover the attorney's fees and other costs of bringing the lawsuit.
Local Contracts. Local governments must pay invoices within the time period provided in the contract or, if no contract terms apply, within their "standard payment period." For local governments whose governing boards meet at least monthly, the "standard payment period is 35 days after the receipt of the goods or services or the invoices for the goods or services, whichever is later." For governing boards meeting less than monthly and for joint powers organizations, the period is 45 days. The local government is not liable for interest on overdue bills disputed in good faith, but if the payment delay is not in good faith, the contractor is entitled to recover any costs and attorney's fees expended in collecting the bill.
Subcontractor Payments. Just as contractors are entitled to super-interest on late payments, so are subcontractors. Contractors must pay interest of 18% per year on all invoices submitted by their subcontractors or suppliers if they do not make payment of undisputed amounts within ten days after receiving payment from the government for the subcontractor's work, or be liable for costs and attorney's fees should the subcontractor prevail in a civil collection action. Unlike contractors, however, subcontractors are also entitled to interest of 18% per year on late payments on private projects.
The prompt payment laws are a powerful incentive for timely payments, especially when contractors, subcontractors and suppliers have the right to collect attorney's fees for their efforts to collect payments. When payments are slow, don't hesitate to remind public owners of their prompt payment obligations.
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