The prompt payment act sets mandatory deadlines for paying subcontractors and suppliers on construction projects. Every state and the federal government enforce their own version. In 2025, the American Subcontractors Association reported that 62% of subcontractors experienced late payment on at least one project. Late payment penalties under prompt payment laws range from 1% to 2% per month, plus attorney's fees in most jurisdictions.

This pillar guide covers everything general contractors need to know about prompt payment laws. We break down federal requirements, map state-by-state variations, and provide actionable compliance workflows.

What the Federal Prompt Payment Act Requires

The federal Prompt Payment Act (31 U.S.C. 3901-3907) applies to all federal construction projects. It establishes clear payment timelines from the government to the prime contractor and from the prime contractor to subcontractors.

Government to prime contractor. The government must pay the prime contractor within 14 days of receiving a proper invoice for progress payments. Final payments must be processed within 30 days of final acceptance.

Prime contractor to subcontractor. The prime contractor must pay each subcontractor within 14 days of receiving payment from the government. This 14-day clock starts the moment the GC receives the government's payment.

Interest penalties. Late payments accrue interest at the rate set by the Secretary of the Treasury. As of Q1 2026, that rate is 5.25% per year. The GC cannot waive or modify this interest requirement by contract.

Retainage rules. Federal projects cap retainage at 10% of progress payments. Many agencies now limit retainage to 5% or release it at 50% completion.

How Prompt Payment Acts Apply to Private Projects

Private project prompt payment laws operate differently from federal rules. Most states set specific payment deadlines for owner-to-GC and GC-to-sub payments on private construction work.

The key difference is enforcement. Federal prompt payment violations trigger automatic interest. Private project violations may require the sub to send a demand letter or file a claim before penalties apply.

Private work prompt payment acts typically address four areas. They set the maximum number of days between receiving payment and forwarding it to subs. They define what constitutes a "proper invoice." They establish interest penalty rates for late payments. They restrict pay-if-paid and pay-when-paid clauses.

State-by-State Prompt Payment Act Deadlines

State prompt payment laws create a patchwork of deadlines that GCs operating across state lines must track carefully.

State	Owner to GC (Days)	GC to Sub (Days)	Interest Penalty Rate	Applies to Private Work
California	30	7 after receipt	2% per month	Yes
Texas	35	7 after receipt	1.5% per month	Yes
Florida	25 (private) / 25 (public)	10 after receipt	1% per month + fees	Yes
New York	30	7 after receipt	1% per month	Yes (public only by statute)
Illinois	30	15 after receipt	2% per month	Yes
Pennsylvania	45 (private) / 20 (public)	14 after receipt	1% per month	Yes
Ohio	30	10 after receipt	18% per year	Yes
Georgia	30	10 after receipt	1% per month	Yes
Virginia	30	7 after receipt	1% per month	Yes
Washington	30	10 after receipt	1% per month + fees	Yes

GCs should use the Prevailing Wage Lookup tool to verify state-specific requirements before starting work in a new jurisdiction.

What Triggers Prompt Payment Act Penalties

Penalties under the prompt payment act trigger automatically in most jurisdictions once the payment deadline passes. GCs do not get a grace period.

Interest accrual start date. Interest begins on the day after the payment deadline expires. If your state gives you 7 days after receipt of owner payment to pay the sub, interest starts on day 8.

Attorney's fees. Twenty-three states allow subcontractors to recover attorney's fees when they win a prompt payment claim. This transforms a $50,000 late payment into a $75,000-$100,000 liability.

Suspension of work. In 12 states, subcontractors can suspend work after sending written notice of nonpayment. Suspension timelines range from 7 to 30 days after notice.

Contract provisions that violate prompt payment acts. Pay-if-paid clauses are void in several states when they conflict with prompt payment statutes. A contract term that extends payment beyond the statutory deadline may also be unenforceable.

How Retainage Interacts with Prompt Payment Laws

Retainage creates the most common prompt payment compliance failure for GCs. Many states now limit retainage percentages and set deadlines for release.

Retainage caps. Federal projects limit retainage to 10%. States like Colorado, Arizona, and Nevada cap retainage at 5%. California limits retainage to 5% on public projects and 10% on private projects.

Release deadlines. Most states require retainage release within 30-60 days of substantial completion or final acceptance. Holding retainage beyond the statutory deadline triggers the same interest penalties as late progress payments.

Reduction schedules. Some states require reducing retainage to 50% after the subcontractor completes their scope, even if the overall project continues. This prevents GCs from holding 10% retainage on a plumber who finished work six months before project completion.

Prompt Payment Act Compliance Workflow for GCs

Building a prompt payment compliance workflow requires five steps. Each step maps to a specific deadline in your payment process.

Step 1: Log receipt dates. The moment you receive payment from the owner, record the date and amount in your project management system. This date starts the clock for every subcontractor payment.

Step 2: Verify invoices within 48 hours. Review each sub's invoice against the approved schedule of values, completed work, and stored materials. If you dispute a portion, document the specific items and notify the sub in writing. Pay the undisputed amount by the deadline.

Step 3: Process payments within the statutory window. Set calendar reminders for 3 days before each deadline. Most accounting systems can automate payment scheduling based on receipt date plus statutory days.

Step 4: Calculate and release retainage. Track each sub's completion percentage separately. Release retainage within the statutory deadline after the sub completes their scope. Do not hold retainage as leverage for punch list items unless the contract and state law specifically allow it.

Step 5: Document everything. Save payment logs, invoice approvals, dispute notices, and check images. If a sub files a prompt payment claim, your records are your defense.

The Connection Between Prompt Payment and Prevailing Wage Projects

Projects subject to Davis-Bacon or state prevailing wage laws carry additional prompt payment requirements. Certified payroll reports must be submitted weekly, and payment must reflect the correct wage rates.

Late payment on prevailing wage projects can trigger both prompt payment penalties and wage violation penalties simultaneously. The Department of Labor can debar contractors from future federal work for repeated violations.

GCs working on public projects should align their prompt payment tracking with their certified payroll submission schedule. Both systems track payment timelines, and consolidating them reduces errors.

How Prompt Payment Acts Affect Hold-Harmless Clauses

Hold-harmless clauses do not override prompt payment obligations. A GC cannot use a hold-harmless provision to avoid paying a sub on time, even if there is a dispute about defective work or back-charges.

The proper approach is to pay the undisputed portion by the deadline and withhold only the disputed amount with written documentation. Courts have consistently ruled that withholding the entire payment over a partial dispute violates prompt payment statutes.

Building Your Prompt Payment Knowledge

This pillar guide provides the foundation. Each spoke article in this cluster dives deeper into specific aspects of prompt payment compliance:

Prompt Payment Act Explained breaks down the law in plain language
How to Handle Prompt Payment Act Best Practices provides actionable implementation steps
Top Prompt Payment Act Mistakes GCs Make covers the most expensive errors
Prompt Payment Act Checklist gives you a practical compliance tool
Why Prompt Payment Act Matters for GC Compliance in 2026 covers current regulatory trends
Prompt Payment Act Best Practices for Construction Compliance reviews compliance tools
State-by-State Guide maps requirements across jurisdictions
Tips and Strategies offers practical guidance from experienced GCs

FAQs

Does the prompt payment act apply to private construction projects? Yes, in most states. Forty-seven states have prompt payment statutes that cover private construction work. The specific deadlines and penalties vary by state. Only a few states limit their prompt payment laws to public projects. Check your state statute before assuming you have more time to pay on private work.

What happens if the owner does not pay the GC? In states that enforce pay-when-paid provisions, the GC still must pay subcontractors within the statutory deadline regardless of whether the owner has paid. In states that allow pay-if-paid clauses, the GC may delay payment, but only if the contract contains specific pay-if-paid language that courts in that state have upheld. Even then, the GC must act in good faith to collect from the owner.

Can a subcontractor waive prompt payment act rights? In most states, prompt payment act rights cannot be waived by contract. Any contractual provision that attempts to extend payment deadlines beyond the statutory limit is void and unenforceable. A few states allow limited modifications if both parties agree in writing and the modified terms still fall within reasonable bounds.

How does the prompt payment act handle disputed invoices? Most state laws require the GC to pay the undisputed portion of the invoice by the statutory deadline. The GC must provide written notice specifying which line items are disputed and why. Withholding the entire invoice amount over a partial dispute typically triggers full interest penalties on the undisputed portion.

What is the difference between pay-if-paid and pay-when-paid? Pay-if-paid makes owner payment a condition precedent to the GC's obligation to pay the sub. If the owner never pays, the GC owes nothing. Pay-when-paid simply sets a reasonable timeframe for payment. Courts in a majority of states disfavor pay-if-paid clauses and will interpret ambiguous language as pay-when-paid.

Do prompt payment acts cover retainage? Yes. Most state prompt payment acts include specific rules for retainage. They cap the percentage a GC can withhold, set deadlines for releasing retainage after substantial completion, and impose the same interest penalties for late retainage release as for late progress payments.

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