Oklahoma Prompt Payment Guide and FAQs

A. Bid Projects.

1. On all private construction projects in which a set of plans or specifications or both plans and specifications are issued for bid, the owner shall specify in writing the frequency and time period for payments to the prime contractor. The general specifications and the first page of all bid plans shall include the following, or substantially similar, language:

OWNER SHALL ISSUE PAYMENTS WITH A FREQUENCY OF __________.

OWNER SHALL ISSUE EACH PAYMENT TO THE PRIME CONTRACTOR WITHIN ________ DAYS AFTER RECEIPT OF CONTRACTOR’S BILLING.

Any resulting contract shall include the payment frequency and time period prescribed in the general specifications and bid plans. An architect, engineer, or other entity preparing the plans and specifications for the owner shall not be liable for the failure to include the payment terms on a set of plans or specifications used for bidding purposes.

2. If the owner fails to comply with the provisions of paragraph 1 of this subsection, the following shall be applicable: a) the owner shall make monthly progress payments, and b) payments shall be due within twenty-eight (28) calendar days after receipt of billing.

3. The owner may reduce the progress payment as provided for in the contract.

4. Subcontractors shall be paid by the prime contractor within ten (10) calendar days of payment from the owner, or as otherwise agreed to by the parties. Payment may be reduced as provided for in the subcontract.

B. Private Negotiated Projects.

1. The provisions of subsection A of this section shall not be applicable to private negotiated projects.

2. An owner may choose to negotiate a construction contract with a contractor, and may also choose to keep the payment terms of that contract private.

3. If a contractor invites a subcontractor to bid on any portion of a negotiated project, the contractor shall clearly define the contractor’s payment term upon issuance of the invitation to bid. Such payment term shall be defined as to the frequency that payments shall be made, and a specific day of the month that the subcontractor shall expect to receive each payment.

4. Any subcontract negotiated pursuant to this subsection shall include the same payment terms as were represented by the prime contractor to the subcontractor prior to the acceptance of the bid of the subcontractor. Payment may be reduced as provided for in the subcontract.

C. Suspension of Work for Bid Projects and Private Negotiated Projects.

1. The prime contractor may suspend work: a) when payment has not been received within ten (10) calendar days of the date payment should have been received, b) if the prime contractor has complied with the contract, and c) if the prime contractor has given the owner ten (10) calendar days written notice of work suspension delivered by certified mail or other verifiable service.

2. Subcontractors may suspend work:

when payment has not been received within ten (10) calendar days of the date payment should have been received, a) if the subcontractor has complied with the subcontract, and b) if the subcontractor has given the prime contractor ten (10) calendar days written notice of work suspension delivered by certified mail or other verifiable service.

D. Resumption of Work.

No prime contractor or subcontractor shall be required to resume work until:

1. Receipt of full payment of undisputed portions of outstanding billing;

2. The contracted work schedule is extended the number of days of delay; and

3. A change order is issued for the verifiable direct cost of suspension, delay and start-up.

This act shall be known and may be cited as the “Fair Pay for Construction Act”.

As used in the Fair Pay for Construction Act:

“Construction contract” means a written contract or subcontract awarded by an owner or contracting entity for the purpose of making any public improvements or constructing any public building or making repairs to or performing maintenance on the same;

“Material supplier” means any entity that supplies materials, services, or equipment to be used in conjunction with the performance of work on a construction contract;

“Prime contractor” means any entity that has a direct contract with an owner to perform work under a construction contract;

“Owner” means any state government entity, municipality, township, public trust or an instrumentality of a state government entity, municipality, township or public trust in this state, or any entity designated by the owner to act on the owner’s behalf, that requests work to be performed by a contractor under a construction contract;

“Proper invoice” means a request for payment or partial payment based on work performed on a construction contract;

“Retainage” means the difference between a gross proper invoice amount on a construction contract and the amount paid on said contract;

“Subcontractor” means any entity that has a direct contract with a prime contractor to perform a portion of the work under a construction contract; and

“Sub-subcontractor” means any entity that has a direct contract with another subcontractor to perform a portion of the work under a construction contract.

A.  On all construction contracts exceeding Twenty-five Thousand Dollars ($25,000.00) in value an owner shall make progress payments to the prime contractor for work performed and materials properly stored, within thirty (30) calendar days after a proper invoice is submitted to the owner or a representative designated by the owner.

B.  An owner or entity designated by the owner, may not reduce a proper invoice of a prime contractor without detailing and forwarding to the prime contractor, within fourteen (14) calendar days of receipt of the proper invoice, the reasons for reduction. The reduction may not be more than an amount that is reasonable to correct the work, as set forth in writing.

C.  If a contracting entity has had their proper invoice reduced by another entity all other affected entities having a construction contract with the contracting entity shall be notified within seven (7) calendar days. Except as affected by a prior reduction, a prime contractor or subcontractor may not reduce the proper invoice of another subcontractor, sub-subcontractor, or material supplier without detailing and forwarding to the subcontractor, sub-subcontractor, or material supplier, within seven (7) calendar days of receipt of the proper invoice, the reasons for reduction. A prime contractor, subcontractor, or sub-subcontractor may also reduce a payment of a contracted party from a previous proper invoice. Any such reductions may not be more than an amount that is reasonable to correct the reasons for reduction, as set forth in writing. Any prime contractor, subcontractor or sub-subcontractor may be exempt from notification if the reduction is less than one percent (1%) of its net proper invoice or is due to mathematical errors.

A.  If a subcontractor or material supplier has performed in accordance with the provisions of a construction contract, the prime contractor shall make payment to the subcontractor or material supplier no later than ten (10) calendar days after the prime contractor receives its corresponding payment for the work performed.

B.  If a sub-subcontractor or material supplier has performed in accordance with the provisions of a construction contract, the sub-subcontractor or material supplier shall be entitled to receive payment no later than seven (7) calendar days after subcontractor receives its corresponding payment for the work performed.

A.  Any prime contractor that performs work under a construction contract may suspend performance of the work or may terminate a construction contract if the prime contractor is not properly paid within forty-nine (49) calendar days of the date that the corresponding proper invoice is submitted. Written notice must be received by the owner at least seven (7) calendar days before any such intended suspension or termination.

B.  A prime contractor or any entity that suspends performance due to the suspension of a prime contractor, is not required to furnish further performance until such entity is paid for the full amount, less retainage, of work performed, material supplied, or services rendered, together with any costs incurred for demobilization, mobilization and other costs attributable to delay of the work resulting from the shutdown and start-up of a project.

C.  Any entity that suspends performance of the work or terminates a construction contract for nonpayment under this act shall not be held in breach of the construction contract.

D.  If the owner delays in making payments to the prime contractor, any agreed-upon schedule or completion date and their resulting penalties, damages, bonuses, or rewards shall be extended by the same amount of calendar days that payments were late.

E.  If a payment to a prime contractor is received later than as specified in this act, that prime contractor shall be entitled to receive interest pursuant to Section 41.4b of Title 62 of the Oklahoma Statutes. If the prime contractor has already paid a subcontractor, then no interest is due and owing to the subcontractor. If interest is paid to a prime contractor as provided herein, then any subsequent timely payment made to a subcontractor shall bear interest at the same rate paid to the prime contractor. If a prime contractor fails to timely pay a subcontractor, such payment to a subcontractor shall bear interest at the rate of one and one-half percent (1 1/2%) per month.

A.  A construction contract may include a provision for the retainage of a portion of payment due. Such retainage is not to exceed five percent (5%) of the amount of the payment due.

B.  A subcontract may include a provision for the retainage of a portion of payment due. Such retainage is not to exceed five percent (5%) of the amount of the payment due.

C.  No later than twenty-one (21) calendar days after a certificate of substantial completion is issued for the project or separate usable phase of the project and upon adequate performance of the prime contractor and with approval of any applicable surety, retainage shall be released by the owner to the prime contractor less an amount no greater than one hundred fifty percent (150%) of the estimated costs to correct any incomplete or defective work as identified, itemized, and attached to the certificate of substantial completion. All remaining funds shall be released as each deficiency is satisfactorily completed. The prime contractor shall release within ten (10) calendar days of receipt, the share of those funds that have been withheld from other entities. All other entities shall release within seven (7) calendar days of receipt, the share of those funds that have been withheld from other entities.

1. This act shall not apply to: (a) highway construction, (b) railroad construction, or (c) turnpike construction.

2. Except as the following may be a portion of a construction contract as defined in Section 2 of this act, this act shall not apply to: (a) roads, (b) bridges, (c) utilities, (d) traffic control, (e) drainage construction, (f) sanitary sewer construction, or (e) waterline construction.

3. This act shall not apply to any contract relating to a single-, two-, three-, or four-family dwelling.

B. The following are against the public policy of this state and are void and unenforceable:

1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract that makes the contract subject to the laws of another state or that requires any litigation, arbitration or other dispute resolution proceeding arising from the contract to be conducted in another state; and

2. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract that disallows or alters the rights of any prime contractor, subcontractor, sub-subcontractor, or material supplier to receive and enforce any and all rights under this act.