Can our Rhode Island construction contract set its own payment timetable?
Rhode Island has no private-works prompt-payment act that could be located: no Rhode Island statute we could find fixes when a private owner or a general contractor must pay a progress or final invoice, and none awards interest for paying one late. Two narrower statutes do bind, and a private contract cannot rewrite either. (1) RETAINAGE, private and public. R.I. Gen. Laws § 37-12-10.1(a): “No contract for construction, as defined in § 5-65-1, or for state or municipal public works projects … shall include retainage that exceeds five percent (5%) of any progress payment.” The adjacent definition is what makes it private: § 5-65-1(6) defines a “Contract for construction” as “a contract for which a lien may be established under chapter 28 of title 34 or for state or municipal public works projects … on a project for which the person on whose contract with the project owner has an original contract price of not less than two hundred fifty thousand dollars ($250,000)”, excluding “a project containing, or designed to contain, at least one, but not more than four (4), dwelling units”. Within that Act, and only after the sixty-day wait and the notice-of-substantial-completion machinery in subsections (b)–(e), an application for payment of retainage “shall be paid not later than thirty (30) days following submission of the application”, but “[s]ubject to subsection (f)”, which lets the payer hold back half a percent for latent defects, the value of missing deliverables, “[o]ne hundred fifty percent (150%) of the reasonable cost to complete or correct incomplete or defective work items” and the reasonable value of claims, and § 37-12-10.1(k) voids “[a] provision in a contract for construction that purports to waive, limit, or subvert this section”. (2) WHEN THE PAYER IS THE STATE, chapter 42-11.1 applies: “All bills shall be paid within thirty (30) calendar days of receipt of a proper invoice”, “[e]ach contractor shall make payment to subcontractors within seven (7) days of receipt of payment by the state”, and any contractual waiver of the right to that interest is “declared to be contrary to public policy and wholly void”. Neither chapter reaches a private owner’s progress payments, so on a private job the timetable is whatever the contract says and the lien in chapter 34-28 is the remedy.
The trap
The brief version (Title 37 is the public-property title, so the section cannot reach a private job) is wrong, and the opposite mistake is just as costly. Section 37-12-10.1 sits in the public-property title but defines its own reach through § 5-65-1(6), which starts with “a contract for which a lien may be established under chapter 28 of title 34”, i.e. private construction. It then shuts the door on most jobs: the project must carry an original contract price of at least $250,000, and a project designed to contain one to four dwelling units is excluded outright. A $200,000 commercial fit-out and a four-unit residential building therefore get NOTHING from the Act, not the 5% cap, not the thirty-day retainage payment, not the anti-waiver clause. Read the other carve-outs too: § 37-12-10.1(a) excludes “contracts under § 37-12-10” (public works, sewers and water mains under $500,000, which have their own 5% retention rule), and § 37-12-10.1(m) exempts RIDOT entirely. On the state side, § 42-11.1-2(10)’s “State agency” definition is the gate and § 42-11.1-14 lists what the chapter does not reach. Finally: PAY-IF-PAID IS UNDECIDED IN RHODE ISLAND. In Petrolex II LLC v. The Bailey Group LLC the Supreme Court had the question squarely (“the pay-if-paid provision in the subcontracts is void and unenforceable as being against public policy”) and sent it away: “any disagreement over the enforceability of the pay-if-paid provision should be decided by an arbitrator”, adding of the Superior Court decision holding such a clause void that “[t]hat ruling has no bearing on our decision in the cases at bar.” Do not tell a Rhode Island subcontractor that pay-if-paid is void here.
20 authorities
- statuteR.I. Gen. Laws § 37-12-10.1enactment date not established
The words that state the rule
No contract for construction, as defined in § 5-65-1, or for state or municipal public works projects, as defined in this title, excluding contracts under § 37-12-10, shall include retainage that exceeds five percent (5%) of any progress payment.
- statuteR.I. Gen. Laws § 5-65-1enactment date not established
The words that state the rule
“Contract for construction” means a contract for which a lien may be established under chapter 28 of title 34 or for state or municipal public works projects as defined in title 37 on a project for which the person on whose contract with the project owner has an original contract price of not less than two hundred fifty thousand dollars ($250,000); provided, however, that “contract for construction” shall not include a project containing, or designed to contain, at least one, but not more than four (4), dwelling units.
- statuteR.I. Gen. Laws § 37-12-10.1enactment date not established
The words that state the rule
Subject to subsection (f), an application for payment of retainage shall be paid not later than thirty (30) days following submission of the application, or on the next payment cycle in accordance with the established state revolving fund (SRF) payment schedule
- statuteR.I. Gen. Laws § 37-12-10.1enactment date not established
The words that state the rule
A provision in a contract for construction that purports to waive, limit, or subvert this section or redefine or expand the conditions for achievement of substantial completion for payment of retainage shall be void and unenforceable.
- statuteR.I. Gen. Laws § 37-12-10.1enactment date not established
The words that state the rule
A provision in a contract for construction that requires a person to delay commencement of the applicable dispute resolution procedure for more than thirty (30) days after either the rejection of an application for payment of retainage or written notice of the dispute is provided, whichever first occurs, shall be void and unenforceable.
- statuteR.I. Gen. Laws § 37-12-10.1enactment date not established
The words that state the rule
The Rhode Island department of transportation (RIDOT) shall be exempt from the provisions of this section and may deduct from any payments required pursuant to any construction contract an amount reasonably sufficient to secure satisfactory performance of contractual work
- statuteR.I. Gen. Laws § 37-12-10enactment date not established
The words that state the rule
the awarding authority may deduct from its payment a retention to secure satisfactory performance of the contractual work not exceeding five percent (5%) of the contract price.
- statuteR.I. Gen. Laws § 42-11.1-3enactment date not established
The words that state the rule
All bills shall be paid within thirty (30) calendar days of receipt of a proper invoice or other contractual dates for periodic payments, except when a contractor has failed to submit a bill in accordance with contractually imposed time frames.
- statuteR.I. Gen. Laws § 42-11.1-3enactment date not established
The words that state the rule
Each contractor shall make payment to subcontractors within seven (7) days of receipt of payment by the state; provided, however, that the contractor may setoff a payment due to a subcontractor by an amount equal to the amount of an unpaid legally enforceable debt owed by the subcontractor to the contractor or any amount that the contractor is entitled to withhold under the terms of the contract entered into by the contractor and subcontractor, or any amount owed by the subcontractor to the contractor by way of a statutory obligation, or enforceable lien, of which the contractor or subcontractor had previous knowledge or notice, or has reason to believe exists.
- statuteR.I. Gen. Laws § 42-11.1-11enactment date not established
The words that state the rule
No contract entered into after January 1, 1988, shall contain any provision requiring the payment of interest in a manner inconsistent with this chapter, and any provision contained in the contract that waives the right to the payment of interest is hereby declared to be contrary to public policy and wholly void.
- statuteR.I. Gen. Laws § 42-11.1-2enactment date not established
The words that state the rule
“State agency” means any department, board, bureau, commission, division, office, council, institution, authority, or committee in the executive, legislative, or judicial branches of state government
- statuteR.I. Gen. Laws § 42-11.1-14enactment date not established
The words that state the rule
The provisions of this chapter shall not apply to payments due and owing by the state: (1) Under the eminent domain procedure law, chapter 6 of title 37; (2) As interest allowed on judgments rendered by a court according to any provision of law other than those provisions contained in this chapter; (3) To the federal government; to any state agency or its related instrumentalities; to any duly constituted unit of local government including, but not limited to, cities, towns, school districts, special districts, or any of their related instrumentalities; to any public authority or public benefit corporation; or to employees of state agencies when acting in, or incidental to, their public employment capacity; (4) To contractors of third-party payment agreements; (5) To entities that receive state funds through any intermediary organization other than a state agency; or (6) In situations where the controller exercises a legally authorized set-off against all or part of the payment due the contractor.
- caseNo. 2022-10-Appeal. (PM 19-10036) (R.I. Mar. 31, 2023)Petrolex II LLC v. The Bailey Group LLCR.I.decided 2023
The words that state the rule
The plaintiff next argues that the pay-if-paid provision in the subcontracts is void and unenforceable as being against public policy, and thus not referrable for arbitration.
- caseNo. 2022-10-Appeal. (PM 19-10036) (R.I. Mar. 31, 2023)Petrolex II LLC v. The Bailey Group LLCR.I.decided 2023
The words that state the rule
Accordingly, any disagreement over the enforceability of the pay-if-paid provision should be decided by an arbitrator pursuant to Section 5.2 of the subcontracts.
- caseNo. 2022-10-Appeal. (PM 19-10036) (R.I. Mar. 31, 2023)Petrolex II LLC v. The Bailey Group LLCR.I.decided 2023
The words that state the rule
for summary judgment. That ruling has no bearing on our decision in the cases at bar. Having concluded that
- statuteR.I. Gen. Laws § 34-28-9enactment date not established
The words that state the rule
A notice of lien shall be effective as to any retainage earned but not paid, for work furnished pursuant to § 34-28-1 et. seq., and said notice of lien shall be effective from commencement of said work.
- statuteR.I. Gen. Laws § 37-12-10.1enactment date not established
The words that state the rule
Not more than the following amounts may be withheld from the payment of retainage: (1) For unknown or foreseeable defects that may become known in the first year after substantial completion, one-half percent (½%) may be held for up to one year following the date of substantial completion; (2) For incomplete, incorrect, or missing deliverables, either the value of the deliverables as mutually agreed upon in writing by the parties to the contract for construction of the person seeking payment of retainage pursuant to the contract or if no value has been agreed upon in writing by the parties, the reasonable value of the deliverables which shall not exceed two and one-half percent (2.5%) of the total adjusted contract price of the person seeking payment of retainage; (3) One hundred fifty percent (150%) of the reasonable cost to complete or correct incomplete or defective work items; and (4) The reasonable value of claims and any costs, expenses, and attorney’s fees incurred as a result of the claims if permitted in the contract for construction of the person seeking the payment of retainage.
- statuteR.I. Gen. Laws § 37-12-10.1enactment date not established
The words that state the rule
Except where the contract for construction shall provide for an earlier submission, following the expiration of sixty (60) days after substantial completion or, in the case of a dispute under subsection (c), final and binding resolution of the dispute, a person may submit a written application for payment of retainage in the form required by the person’s contract for construction.
- statuteR.I. Gen. Laws § 42-11.1-3enactment date not established
The words that state the rule
This section shall not apply to contractors or subcontractors performing work pursuant to a contract awarded by the department of transportation unless the subcontractor provides a payment and performance bond in an amount equal to the contract between the contractor and subcontractor.
- caseNo. 2022-10-Appeal. (PM 19-10036) (R.I. Mar. 31, 2023)Petrolex II LLC v. The Bailey Group LLCR.I.decided 2023
The words that state the rule
Conclusion For the reasons set forth in this opinion, we affirm the orders of the Superior Court. The papers in these cases may be returned to the Superior Court.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.