What payment deadlines does Alabama impose on a private construction contract, and can the contract change them?
Chapter 29 of Title 8 sets a default and caps retainage. Performance by a contractor, subcontractor or sub-subcontractor in accordance with the contract entitles them to payment from the party with whom they contract, and all contracts between parties require a date of payment (Ala. Code § 8-29-2). An owner must pay a contractor's pay request or invoice in accordance with the payment terms agreed by the owner and contractor, which must be specified in all contract documents, but if payment terms are not agreed, within 30 days after receipt (§ 8-29-3(a)); a contractor and a subcontractor must pay down the chain in accordance with agreed terms, and if none are agreed within seven days of receipt of payment from above (§ 8-29-3(b)-(c)), and a contractor who receives an owner's payment must pay each subcontractor its portion not later than the seventh day after receiving it (§ 8-29-3(e)). Non-compliant payment carries interest at one percent per month, twelve percent per annum, on the unpaid balance (§ 8-29-3(d)). Retainage is capped at each tier: not more than 10 percent of the estimated amount of work properly done and the value of materials stored may be retained, and after 50 percent completion no further retainage may be withheld, with interest at one percent per month on any excess (the cap running from owner to contractor, contractor to subcontractor, and subcontractor to sub-subcontractor or material supplier alike (§ 8-29-3(i)-(k))), and the percentage withheld down the chain may not exceed the percentage withheld above it, on pain of the same interest (§ 8-29-3(f)-(g)); the owner must release and pay retainage no later than 60 days after completion of the contractor's work or after substantial completion, whichever occurs first, with all necessary certificates of occupancy issued (§ 8-29-3(l)). A party may not waive the right to receive interest before a payment is due, though it may waive interest on a late payment on or after the date the payment is due (§ 8-29-5). In a civil action under the chapter the party in whose favour judgment is rendered recovers reasonable attorneys' fees, court costs and reasonable expenses (§ 8-29-6).
The trap
The 30-day and seven-day figures are defaults that agreed payment terms displace, but the chapter requires the agreed terms to be specified in all contract documents, and it does not let the contract touch the interest right in advance (§ 8-29-5) or the retainage ceiling. The ceiling is narrower than it sounds, by its own terms: the section says it is intended only to cap retainage, time its release and price retainage improperly held, and it expressly leaves the paying party's right to withhold or refuse to approve payment on contract grounds, on the grounds in § 8-29-4, or for work not properly performed or payment not earned, and lets the payer condition payment on a full lien release for the amount being paid (§ 8-29-3(i), (n)). Those withholding grounds are named in the section and are not set out here. Check the exemptions before relying on any of it: the chapter does not apply to residential homebuilders, to improvements to real property intended for residential purposes consisting of 16 or fewer residential units, to contracts, subcontracts or sub-subcontracts of $10,000 or less, or to contracts with the State or local governments of Alabama (§ 8-29-7). Subsections (h) through (l), the retainage rules, also do not apply to a construction project for or by an electric utility regulated by the Public Service Commission (§ 8-29-3(m)).
13 authorities
- statuteAla. Code § 8-29-2enactment date not established
The words that state the rule
Performance by a contractor, subcontractor, or sub-subcontractor in accordance with the provisions of his or her contract entitles them to payment from the party with whom they contract. All contracts between parties require a date of payment.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
(a) When a contractor has performed pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials, to the owner or owner’s representative, the owner shall timely pay the contractor by mailing via first class mail or delivering the amount of the pay request or invoice in accordance with the payment terms agreed to by the owner and the contractor, the agreed upon payment terms must be specified in all contract documents, but if payment terms are not agreed to, then within 30 days after receipt of the pay request or invoice.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
If the owner, contractor, or subcontractor does not make payment in compliance with this chapter, the owner, contractor, or subcontractor shall be obligated to pay his or her contractor, subcontractor, or sub-subcontractor interest at the rate of one percent per month (12% per annum) on the unpaid balance due.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
(f) The percentage of retainage on payments by the contractor to the subcontractor shall not exceed the percentage of retainage on payments made by the owner to the contractor. Any percentage of retainage on payments made by contractor to the subcontractor that exceeds the percentage of retainage on payments made by the owner to the contractor shall be subject to interest to be paid by the contractor to the subcontractor at the rate of one percent per month (12% per annum). (g) The percentage of retainage on payments by the subcontractor to the sub-subcontractor shall not exceed the percentage of retainage on payments made by the contractor to the subcontractor. Retainage on payments made by the subcontractor to the sub-subcontractor that exceeds the percentage of retainage on payments made by the contractor to the subcontractor shall be subject to interest paid at the rate of one percent per month (12% per annum). (h) For the purposes of this chapter, retainage means that money, or other security as agreed to by the parties to a construction contract, earned by the contractor, subcontractor or lower tier sub-subcontractor, or supplier for work properly performed or materials suitably stored if payment for stored materials is provided for in the contract, which has been retained by the owner conditioned on final completion and acceptance of all work in connection with a project or projects by the contractor, subcontractor or lower tier sub-subcontractor, or supplier.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
(i) A construction contract on any project in this state may provide for the owner’s withholding of retainage from payments to its contractor for work performed by that contractor on a construction project. There shall be retained not more than 10 percent of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site, and after 50 percent completion has been accomplished, no further retainage shall be withheld. If an owner withholds an amount greater than that allowed by this subsection, the owner shall be liable to the contractor for interest accruing on the excess amount withheld at the rate of one percent per month. Nothing herein is intended to limit or alter the paying party’s right to withhold or not approve payment on grounds set forth in the parties’ contract or the grounds set forth in Section 8-29-4 or otherwise for work not properly performed or payment not earned; rather, this section is intended only to establish a maximum amount of retainage, establish the timing for release of retainage, and provide for the payment of interest for improperly held retainage.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
(j) A construction contract on any project in this state may provide for the contractor’s withholding of retainage from payments to its subcontractors for work performed by the subcontractors on a construction project. There shall be retained not more than 10 percent of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site, and after 50 percent completion has been accomplished, no further retainage shall be withheld. If a contractor withholds an amount greater than that allowed by this subsection, the contractor shall be liable to the subcontractor for interest accruing on the excess amount withheld at the rate of one percent per month.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
(l)(1) The owner shall release and pay retainage to the contractor for work completed on any construction contract no later than 60 days after the completion of the contractor’s work defined in its contract with the owner, or no later than 60 days after substantial completion of the project, whichever occurs first, and in both events, with all necessary certificates of occupancy having been issued. The contractor shall release and pay retainage to its subcontractors for work completed pursuant to the terms of this chapter. (2) For the purposes of this subsection, substantial completion means the stage in the progress of the project when the project or designated portion thereof is sufficiently complete in accordance with the contract documents with all necessary certificates of occupancy having been issued so that the owner may occupy or utilize the project for its intended purpose.
- statuteAla. Code § 8-29-5enactment date not established
The words that state the rule
A party may not waive the right to receive interest before a payment is due under a contract subject to this section. A party may waive the interest due on any late payment on or after the date the payment is due under Section 8-29-3.
- statuteAla. Code § 8-29-6enactment date not established
The words that state the rule
A contractor, subcontractor, or sub-subcontractor may file a civil action solely against the party contractually obligated for the payment of the amount claimed to recover the amount due plus the interest accrued in accordance with this chapter. If the court finds in the civil action that the owner, contractor, or subcontractor has not made payment in compliance with this chapter, the court shall award the interest specified in this chapter in addition to the amount due. In any such civil action, the party in whose favor a judgement is rendered shall be entitled to recover payment of reasonable attorneys’ fees, court costs and reasonable expenses from the other party.
- statuteAla. Code § 8-29-7enactment date not established
The words that state the rule
This chapter does not apply to the following: (1) Residential homebuilders. (2) Improvements to real property intended for residential purposes which consist of 16 or fewer residential units. (3) Contracts, subcontracts, or sub-subcontracts in the amount of ten thousand dollars ($10,000) or less. (4) Contracts with the state or local governments of the State of Alabama.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
(b) When a subcontractor has performed pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials to a contractor in sufficient time to allow the contractor to include the application, request, or invoice in his or her own pay request submitted to an owner, the contractor shall timely pay to the subcontractor in accordance with the payment terms agreed to by the contractor and subcontractor, but if payment terms are not agreed to, then within seven days of receipt of payment from owner by mailing via first class mail or delivering the amount received for the subcontractor’s work and materials based on work properly completed or service properly provided under the contract. (c) When a sub-subcontractor has performed labor or supplied materials for a subcontractor pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials to a subcontractor in sufficient time to allow the subcontractor to include the application, request, or invoice in his or her own pay request submitted to a contractor, the subcontractor shall timely pay the sub-subcontractor in accordance with the payment terms agreed to by the subcontractor and sub-subcontractor but if payment terms are not agreed to, then within seven days of receipt of payment from contractor by mailing via first class mail or delivering the amount received for the sub-subcontractor’s work and materials based on work properly completed or service properly provided under the contract.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
(e) A contractor who receives a payment under subsection (a) or otherwise, from an owner in connection with a contract shall pay each of its subcontractors the portion of the owner’s payment to the extent of that subcontractor’s interest in the owner’s payment. The payment shall include interest, if any, that is attributable to work properly performed or materials suitably stored by that subcontractor if payment for stored materials is provided for in the contract. The payment required by this subsection shall be made not later than the seventh day after the date the contractor receives the owner’s payment.
- statuteAla. Code § 8-29-3enactment date not established
The words that state the rule
(m) The provisions of subsections (h) through (l) shall not apply to any construction project for or by an electric utility regulated by the Public Service Commission. (n) Nothing herein limits or alters the paying party’s right to withhold or not approve payment on grounds set forth in the party’s contract or the grounds set forth in Section 8-29-4 or otherwise for work not properly performed or payment not earned; rather, this section is intended only to establish a maximum amount of retainage, establish the timing for release of retainage, and provide for the payment of interest for improperly held retainage. Also, the paying party may condition payment on the receipt of a full release of any lien of the contractor, subcontractor, or sub-subcontractor for the amount of work being paid. (o) All loans and loan proceeds related to a construction project, and the disbursement and use thereof, are governed solely by the terms of the documents evidencing and securing the loan, and contractors, subcontractors, and sub-subcontractors have no lien or rights in any such loan, loan proceeds, or the disbursement or use thereof.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.