The Prompt Payment Act establishes mandatory payment timelines for federal construction projects and creates financial penalties for late payments. For general contractors, understanding this law means faster cash flow, enforceable payment rights, and protection against the slow-payment practices that squeeze construction businesses.

This pillar guide covers everything GCs need to know about federal and state prompt payment requirements. It connects to our detailed guides on best practices, common mistakes, and state-by-state requirements.

What the Federal Prompt Payment Act Requires

The federal Prompt Payment Act (31 U.S.C. 3901-3907) applies to all federal government contracts. It establishes strict timelines for payment from the government to prime contractors and from prime contractors to subcontractors.

Payment Flow	Payment Deadline	Interest Rate
Government to prime contractor	14 days after receipt of proper invoice (construction)	Treasury rate (current: ~4.5%)
Prime contractor to subcontractor	7 days after receiving government payment	Contractual rate or state statutory rate
Subcontractor to lower-tier	7 days after receiving payment from higher tier	Contractual rate or state statutory rate

The government's 14-day payment clock starts when the contracting officer receives a proper invoice. If the agency does not pay within the 14-day window, interest accrues automatically. The GC does not need to request interest; the government must calculate and pay it.

The Flow-Down Payment Obligation

The Act requires GCs to pay subcontractors within 7 days of receiving payment from the government. This is not negotiable. Contract provisions that extend this timeline beyond 7 days violate federal law.

The 7-day flow-down applies at every tier. When you pay your subcontractor, they must pay their lower-tier subcontractors and suppliers within 7 days. This creates a payment cascade that the Act enforces through interest penalties.

Interest on late payments. If a GC holds subcontractor payments beyond the 7-day window, interest accrues at the rate specified in the prime contract. The GC absorbs this interest cost; it cannot be passed to the government or deducted from the subcontractor's payment.

Proper Invoice Requirements

The payment clock does not start until the government receives a "proper invoice." Understanding what constitutes a proper invoice prevents delays.

A proper invoice must include the contractor name, invoice date, contract number, description of work performed, payment amount, payment terms, and any required certifications. Missing any element allows the government to reject the invoice and restart the payment clock.

Best practice: Create a proper invoice checklist for every federal project. Verify completeness before submission. A rejected invoice delays payment by weeks because the correction and resubmission process restarts the timeline.

Retainage Under the Prompt Payment Act

The Act addresses retainage on federal construction projects. Agencies may withhold retainage during construction but must release it promptly after substantial completion.

Current federal policy limits retainage to a maximum of 10% of progress payments. Many agencies reduce retainage to 5% or less after the project reaches 50% completion. Some agencies have eliminated retainage entirely on certain project types.

GCs should request retainage reduction at the 50% milestone. The contracting officer has discretion to reduce retainage based on contractor performance and project status.

State Prompt Payment Acts

All 50 states have enacted their own prompt payment statutes. These laws apply to state-funded projects and, in many states, to private construction projects as well.

State Law Feature	Range Across States
Payment deadline (public projects)	7-60 days after invoice
Payment deadline (private projects)	14-60 days after invoice
Interest rate on late payments	1-2% per month (most common)
Retainage limits	5-10% (some states capping at 5%)
Attorney fee recovery	Available in ~30 states
Private project coverage	~35 states cover private projects

State prompt payment laws often provide stronger protections than the federal Act. Higher interest rates, shorter payment deadlines, and attorney fee provisions create more meaningful incentives for timely payment.

See our state-by-state prompt payment guide for specific requirements in your jurisdiction.

How the Prompt Payment Act Interacts With Other Laws

The Prompt Payment Act operates alongside other federal construction laws that GCs must track.

Davis-Bacon Act. Prevailing wage requirements add complexity to invoicing. Certified payrolls must support labor charges on invoices. Wage classification errors can trigger invoice rejection and delay the payment clock.

Miller Act. Payment bond claims provide a separate remedy when prompt payment requirements are not met. Subcontractors can pursue both prompt payment interest and Miller Act bond claims.

Contract Disputes Act. Payment disputes that the Prompt Payment Act does not resolve may escalate to claims under the Contract Disputes Act. This provides an alternative dispute resolution path through the contracting officer, boards of contract appeals, and the Court of Federal Claims.

Hold-harmless provisions. Indemnification clauses do not override prompt payment obligations. A GC cannot use a subcontractor's indemnification obligation as a basis for withholding payment beyond the statutory timeline.

Building a Prompt Payment Compliance System

Effective prompt payment compliance requires a systematic approach.

Invoice tracking. Track every invoice from submission through payment. Record submission dates, approval dates, payment dates, and any rejection reasons. This data supports interest claims and identifies bottleneck areas.

Payment calendar. Create a payment calendar that calculates the 7-day subcontractor payment deadline for each government payment received. Missing the 7-day window triggers interest liability that erodes project margin.

Retainage tracking. Monitor retainage balances for both the prime contract and all subcontracts. Calendar retainage release deadlines based on substantial completion milestones.

Interest calculations. When the government pays late, verify that interest is calculated correctly. When you pay subcontractors late, calculate and pay interest proactively rather than waiting for a demand.

Use Our Free Prevailing Wage Lookup Tool

Accurate prevailing wage data supports proper invoicing on federal projects. Our Prevailing Wage Lookup Tool provides current rates for all classifications.

FAQs

Does the Prompt Payment Act apply to private construction projects? The federal Prompt Payment Act applies only to federal government contracts. However, approximately 35 states have enacted prompt payment statutes that cover private construction projects. Check your state's statute for applicability to private work.

What interest rate applies to late payments under the federal Act? The federal interest rate is set by the Secretary of the Treasury and is published semiannually. It is based on the Treasury rate for tax overpayments. State prompt payment acts set their own interest rates, which are typically higher than the federal rate.

Can a GC withhold subcontractor payment for disputed work? GCs may withhold payment for the specific amount in dispute, but must pay the undisputed portion within the statutory timeline. Withholding the entire payment because of a partial dispute violates the Act and triggers interest on the undisputed amount.

What happens if the government rejects an invoice? The agency must notify the contractor of the deficiency within 7 days of receiving the invoice. The payment clock stops until a corrected invoice is submitted. Once a proper invoice is submitted, the 14-day payment timeline restarts from the new submission date.

How do GCs enforce prompt payment rights against the government? File a claim with the contracting officer under the Contract Disputes Act. If the contracting officer denies the claim or fails to respond within 60 days, appeal to the appropriate Board of Contract Appeals or the Court of Federal Claims.

Does the Prompt Payment Act cover change order payments? Yes. Change orders that have been approved and incorporated into the contract are subject to the same prompt payment timelines as base contract payments. Unapproved change orders may be subject to the claims process rather than the prompt payment process.

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