The Georgia Prompt Pay Act

By: James C. Busch

The 1994 Georgia General Assembly has passed a new statute known as the Georgia Prompt Pay Act. This new statute will take effect on January 1, 1995. This statute has possible implications for any commercial construction related business.

Preliminarily, under this new statute, a contractor is defined as a “person who contracts with an owner to improve real property, to perform construction services, or to perform construction management services for an owner”. Further, in order for this statute to be effective, a contractor must satisfy the conditions of his or her contract prior to being able to enforce this statute.

Once the contractor has satisfied the conditions of his or her contract, the owner of the real property is required to pay the contractor within fifteen (15) days of receipt by the owner or the owner’s representative of any payment request based upon work completed or for services rendered under the contract.

In addition, under this new statute, a subcontractor is defined to be “any person who has contracted to furnish labor or materials to or has performed labor or supplied materials for a contractor or another subcontractor in connection with a contract to improve real property”.

Once the subcontractor has satisfied the conditions of his or her contract, the contractor is required to pay to that subcontractor and each subcontractor shall pay to its subcontractor, within ten (10) days of receipt by the contractor or subcontractor of each periodic or final payment, the full amount received for such subcontractor’s work and materials based on work completed or service provided under the subcontractor provided that the subcontractor has provided or provides such satisfactory reasonable assurances of continued performance and financial responsibility to complete his or her reasonable discretion may require.

It is important to note that the owner may withhold payment to its contractor or subcontractor for any of the following reasons: (1) unsatisfactory job progress, (2) defective construction which has not been remedied, (3) disputed work, (4) a third party claim filed or reasonable evidence that a claim will be filed, (5) failure of the contractor or its subcontractor to make timely payments for labor, equipment and materials, (6) damage caused by the contractor to the owner, other contractors or subcontractors, or (7) upon reasonable evidence that the contract cannot be completed for the unpaid balance of the contract price.

Under Georgia’s Prompt Pay Act, when a subcontractor has performed in accordance with the provisions of its subcontract, the contractor shall pay to that subcontractor and each subcontractor shall pay to its subcontractor within ten (10) days of receipt by the contractor or subcontractor of each periodic or final payment, the full amount received for such subcontractor’s work and materials based on work completed or service provided under the subcontract.

Further, Georgia’s Prompt Pay Act addresses the timeliness of retainage payments. This new statute calls for contractors to, within ten (10) days from the contractor’s receipt of retainage from the owner, pass through payments to subcontractors and shall reduce each subcontractors’ retainage in the same manner as the contractor’s retainage is reduced by the owner.

In addition, if a periodic or final payment to a contractor is delayed by more than fifteen (15) days or if a periodic payment is delayed more than ten (10) days after receipt of the periodic or final payment by the contractor or subcontractor, then the contractor or subcontractor may begin collecting interest at one (1) percent per month on the unpaid balance. However, in order for interest to be charged, the party to be charged must be notified of the provision of this new statute at the time the request for payment is made.

An important limitation of this statute is that it does not apply to improvements to real property intended for residential purposes which consist of twelve (12) or fewer residential units. Thus, this new statute only effects commercial projects and apartment/condominium complexes of more than twelve residential units.

There are numerous other provisions clarifying terms, addressing attorney’s fees, etc. within the new statute. However, it is important to note on commercial projects and residential projects over twelve (12) units that there are strict pay schedules and strict compliance terms. Clearly, an owner is now required to make timely payments for work satisfactorily performed, but with the exceptions for non-payment place an equal, if not greater, burden on contractors and subcontractors to complete their contract timely and to the satisfaction of the owner.

Any business working on or selling to a commercial project or residential project of more than twelve (12) units must be aware of this statute, the need to fully comply with their contract and the requirement to provide notice of this statute at the time of the request for payment in order to collect interest. This statute provides contractors, subcontractors and suppliers with a legal basis to require timely payment for work satisfactorily performed. Contractors, subcontractors and suppliers to commercial projects should fully familiarize themselves with this statute so as to maximize their benefit.

Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia