Can our private construction contract set its own payment timing and retainage?
Not free of the Act's deemed terms. The Contractor Prompt Payment Act provides that ALL construction contracts shall be deemed to provide: an owner pays an approved payment application within 15 calendar days of approval, and the application is deemed approved 25 days after receipt unless the owner gives a written statement of the amount withheld and the reason; and a contractor pays its subcontractor (and a subcontractor its subcontractor) within 15 calendar days of receiving each periodic payment, final payment or retainage, in the full amount received for that subcontractor's work (815 ILCS 603/10). Late payment carries interest at 10% per annum and, after 7 calendar days' written notice, the unpaid contractor or subcontractor may suspend performance without penalty for breach until paid (815 ILCS 603/15). Retainage may not exceed 10% before the contract is 50% complete and 5% thereafter (815 ILCS 603/20). Section 10(1) also limits withholding: where a portion of the work is not in accordance with the contract, "payment may be withheld for the reasonable value of that portion only", the conforming portion must be paid, and an owner's instruction to its lender or architect to process a payment application is not approval. The Act's interest is not duplicative of Mechanics Lien Act interest (§ 15(c)); "payment application" is any invoice or request for periodic payment, final payment, change-order payment or release of retainage under the contract's own terms, the subcontractor must be paid 'the full amount received for the work of the subcontractor based on the work completed or the services rendered under the construction contract'; and "contractor" and "subcontractor" have the meanings ascribed to them by the Illinois Mechanics Lien Act AND cases decided under that Act (§ 5(a), (c)).
The trap
These are deemed terms (the Act writes them into every covered contract), and on retainage § 20 is a prohibition, not a default: "No construction contract may permit the withholding of retainage from any payment in excess of the amounts permitted in this Section." How a court resolves a conflict between an express payment clause and a § 10 deemed term is not stated here, and that is a gap in the reading rather than in the law: four Illinois opinions name 815 ILCS 603/10 and none of them has been read. The scope definition is where a deal falls out of the Act rather than beats it: 'construction contract' excludes contracts that require the expenditure of public funds and contracts for single-family residences or multiple-family residences with 12 or fewer units in a single building, and covers only contracts entered into after the Act's effective date for Illinois real property (815 ILCS 603/5); what governs the excluded public contracts is not addressed by any text quoted here. The suspension right is conditioned on the 7-day notice, and the Act's interest is not duplicative of Mechanics Lien Act interest.
11 authorities
- statute815 ILCS 603/10enactment date not established
The words that state the rule
All construction contracts shall be deemed to provide the following: (1) If a contractor has performed in accordance with the provisions of a construction contract and the payment application has been approved by the owner or the owner's agent, the owner shall pay the amount due to the contractor pursuant to the payment application not more than 15 calendar days after the approval. The payment application shall be deemed approved 25 days after the owner receives it unless the owner provides, before the end of the 25-day period, a written statement of the amount withheld and the reason for withholding payment.
- statute815 ILCS 603/10enactment date not established
The words that state the rule
(2) If a subcontractor has performed in accordance with the provisions of his or her contract with the contractor or subcontractor and the work has been accepted by the owner, the owner's agent, or the contractor, the contractor shall pay to his or her subcontractor and the subcontractor shall pay to his or her subcontractor, within 15 calendar days of the contractor's receipt from the owner or the subcontractor's receipt from the contractor of each periodic payment, final payment, or receipt of retainage monies, the full amount received for the work of the subcontractor based on the work completed or the services rendered under the construction contract.
- statute815 ILCS 603/15enactment date not established
The words that state the rule
If a payment due pursuant to the provisions of this Act is not made in a timely manner, the delinquent party shall be liable for the amount of that payment, plus interest at a rate equal to 10% per annum.
- statute815 ILCS 603/15enactment date not established
The words that state the rule
(b) A contractor or subcontractor who is not paid as required by this Act may, after providing 7 calendar days' written notice to the party failing to make the required payment, suspend performance of a construction contract without penalty for breach of contract, until the payment required pursuant to this Act is made.
- statute815 ILCS 603/20enactment date not established
The words that state the rule
A construction contract may provide for the withholding of retainage of up to 10% of any payment made prior to the completion of 50% of the contract. When a contract is 50% complete, retainage withheld shall be reduced so that no more than 5% is held. After the contract is 50% complete, no more than 5% of the amount of any subsequent payments made under the contract may be held as retainage.
- statute815 ILCS 603/5enactment date not established
The words that state the rule
"Construction contract" means a contract or subcontract, entered into after the effective date of this Act, for the design, construction, alteration, improvement, or repair of Illinois real property, except for contracts that require the expenditure of public funds and contracts for the design, construction, alteration, improvement, or repair of single family residences or multiple family residences with 12 or fewer units in a single building.
- statute815 ILCS 603/10enactment date not established
The words that state the rule
If the owner finds that a portion of the work is not in accordance with the contract, payment may be withheld for the reasonable value of that portion only. Payment shall be made for any portion of the contract for which the work has been performed in accordance with the provisions of the contract. Instructions or notification from an owner to his or her lender or architect to process or pay a payment application does not constitute approval of the payment application under this Act.
- statute815 ILCS 603/20enactment date not established
The words that state the rule
Sec. 20. Retainage. No construction contract may permit the withholding of retainage from any payment in excess of the amounts permitted in this Section.
- statute815 ILCS 603/15enactment date not established
The words that state the rule
(c) The interest imposed by this Act shall not be duplicative of the interest charged under the Mechanics Lien Act.
- statute815 ILCS 603/5enactment date not established
The words that state the rule
(a) "Payment application" means, in accordance with the terms and definitions of the applicable contract, any invoice, bill or other request for periodic payment, final payment, payment of change order or request for release of retainage from the contractor to the owner.
- statute815 ILCS 603/5enactment date not established
The words that state the rule
(c) "Contractor" and "subcontractor" shall have the meanings ascribed to them by the Illinois Mechanics Lien Act and cases decided under that Act.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.