What payment terms does Minnesota write into our construction subcontract whatever the contract says?
A building and construction contract is DEEMED to require the prime contractor and all subcontractors to promptly pay any subcontractor or material supplier contract within ten days of receipt by the party responsible for payment of payment for undisputed services provided by the party requesting payment, and is deemed to require the party responsible for payment to pay interest of 1-1/2 percent per month on any undisputed amount not paid on time (Minn. Stat. § 337.10, subd. 3). A party requesting payment who prevails in a civil action to collect interest penalties MUST be awarded its costs and disbursements, including attorney fees incurred in bringing the action. If an undisputed payment is not received within ten days, the prime contractor or subcontractor of any tier that has not received it may SUSPEND WORK until it is received. On retainage, subd. 4 provides that retainage may not exceed five percent, that an owner reducing retainage must have the contractor reduce subcontractor retainage at the same rate, and that the owner or the owner's agent must release all retainage no later than 60 days after substantial completion, subject to the terms of the subdivision. A contractor must pass retainage through to its subcontractors within ten days of receiving it, except for work in dispute (subd. 4(d)), and nothing in the subdivision requires retainage to be withheld at all. For the 60-day clock, "substantial completion" is determined as provided in § 541.051, subd. 1(a) - the date when construction is sufficiently completed so that the owner or the owner's representative can occupy or use the improvement for the intended purpose.
The trap
Read the exclusions in subdivision 4 before relying on the retainage rules: subd. 4 does NOT apply to a public agency as defined in § 15.71, subd. 3 ("any agency of the state of Minnesota or any of its political subdivisions authorized by law to enter into public contracts"), and does NOT apply to contracts for professional services as defined in §§ 326.02 to 326.15. Those exclusions are written as limits on 'this subdivision', so on the statute's words they do not reach the ten-day payment and 1-1/2 percent interest rules in subd. 3. Two more drafting traps. Everything in subd. 3 keys off an UNDISPUTED amount and off the paying party's own receipt of payment, so a genuine dispute about part of the work suspends nothing as to that part. And the minimum interest penalty floor in subd. 3 ($10 for an unpaid balance of $100 or more, the actual penalty due below $100) is small: the fee-shifting sentence, not the interest, is the leverage. The section also says what it does NOT require, and a payment clause drafted against the deadlines without it overstates the duty: “Nothing in this section requires payment for a portion of a contract that is not complete or for which an invoice has not been submitted.” So the ten-day clock and the interest penalty attach to a complete, invoiced portion of the work, and neither is triggered by work that is unfinished or unbilled.
13 authorities
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
A building and construction contract shall be deemed to require the prime contractor and all subcontractors to promptly pay any subcontractor or material supplier contract within ten days of receipt by the party responsible for payment of payment for undisputed services provided by the party requesting payment, including payments under subdivision 4. The contract shall be deemed to require the party responsible for payment to pay interest of 1-1/2 percent per month to the party requesting payment on any undisputed amount not paid on time.
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
A party requesting payment who prevails in a civil action to collect interest penalties from a party responsible for payment must be awarded its costs and disbursements, including attorney fees incurred in bringing the action.
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
If an undisputed payment is not received within ten days, the prime contractor or subcontractor of any tier that has not received the undisputed payment may suspend work under the building and construction contract until the undisputed payment is received.
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
Retainage on a building and construction contract may not exceed five percent. An owner or owner's agent may reduce the amount of retainage and may eliminate retainage on any monthly contract payment if, in the owner's opinion, the work is progressing satisfactorily. If the owner reduces the amount of retainage, the contractor must reduce retainage for any subcontractors at the same rate. Nothing in this subdivision is intended to require that retainage be withheld in any building or construction contract.
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
The owner or the owner's agent must release all retainage no later than 60 days after substantial completion subject to the terms of this subdivision. For purposes of this subdivision, "substantial completion" shall be determined as provided in section 541.051 , subdivision 1, paragraph (a).
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
(g) This subdivision does not apply to a public agency as defined in section 15.71 , subdivision 3. (h) This subdivision does not apply to contracts for professional services as defined in sections 326.02 to 326.15 .
- statuteMinn. Stat. § 337.01enactment date not established
The words that state the rule
"Building and construction contract" means a contract for the design, construction, alteration, improvement, repair or maintenance of real property, highways, roads or bridges. The term does not include contracts for the maintenance or repair of machinery, equipment or other such devices used as part of a manufacturing, converting or other production process, including electric, gas, steam, and telephone utility equipment used for production, transmission, or distribution purposes.
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
Nothing in this section requires payment for a portion of a contract that is not complete or for which an invoice has not been submitted.
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
The minimum monthly interest penalty payment for an unpaid balance of $100 or more is $10. For an unpaid balance of less than $100, the party responsible for payment shall pay the actual penalty due to the party requesting payment.
- statuteMinn. Stat. § 541.051enactment date not established
The words that state the rule
Date of substantial completion shall be determined by the date when construction is sufficiently completed so that the owner or the owner's representative can occupy or use the improvement for the intended purpose.
- statuteMinn. Stat. § 15.71enactment date not established
The words that state the rule
"Public agency" or "public contracting agency" means any agency of the state of Minnesota or any of its political subdivisions authorized by law to enter into public contracts.
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
For the purpose of this section, "building and construction contract" has the meaning given the term in section 337.01 .
- statuteMinn. Stat. § 337.10enactment date not established
The words that state the rule
(d) A contractor must pay all remaining retainage to its subcontractors no later than ten days after receiving payment of retainage, unless there is a dispute about the work under a subcontract, in which case the contractor must pay out retainage to any party whose work is not involved in the dispute.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.