Connecticut Prompt Payment Guide & FAQs

As used in sections 42-158i to 42-158n, inclusive, unless the context otherwise requires:

(1) “Owner” means any individual, corporation, nonprofit corporation, partnership, limited partnership, limited liability company or other business entity that is the owner of record or lessee of real property upon which construction, renovation or rehabilitation is to be or is being performed pursuant to a construction contract regarding such real property.

(2) “Construction contract” or “contract” means any contract for the construction, renovation or rehabilitation in this state on or after October 1, 1999, including any improvements to real property that are associated with such construction, renovation or rehabilitation, or any subcontract for construction, renovation or rehabilitation between an owner and a contractor, or between a contractor and a subcontractor or subcontractors, or between a subcontractor and any other subcontractor. “Construction contract” or “contract” does not include (A) any public works or other building contract entered into with this state, the United States, any other state, and any municipality or other political subdivision of this state or any other state, (B) a contract or project funded or insured by the United States Department of Housing and Urban Development, (C) a contract between an owner and a contractor for an amount of twenty-five thousand dollars or less or a subcontract which results from such a contract, or (D) a contract for a building intended for residential occupancy containing four or less units.

(3) “Retainage” means a sum withheld from progress payments to the contractor or subcontractor, otherwise payable to a contractor or subcontractor by an owner conditioned on substantial or final completion of all work in accordance with the terms of a written or verbal construction contract, but does not include any sum withheld due to the contractor’s or subcontractor’s failure to comply with construction plans and specifications.

(a) Each construction contract shall contain the following provisions:

(1) A requirement that the owner pay any amounts due to any contractor in a direct contractual relationship with the owner, or due to any subcontractor or supplier in a direct contractual relationship with the contractor, whether for labor performed or materials furnished, not later than thirty days after the date any written request for such payment has been made to the owner by such contractor, subcontractor or supplier;

(2) a requirement that the contractor pay any amounts due any subcontractor or supplier, whether for labor performed or materials furnished, not later than twenty-five days after the date the contractor receives payment from the owner which encompasses labor performed or materials furnished by such subcontractor or supplier; and

(3) a requirement that the contractor shall include in each of its subcontracts a provision requiring each subcontractor and supplier to pay any amounts due any of its subcontractors or suppliers, whether for labor performed or materials furnished, not later than twenty-five days after the date such subcontractor or supplier receives a payment from the contractor which encompasses labor performed or materials furnished by such subcontractor or supplier.

(b) Each payment requisition submitted by a contractor or subcontractor in accordance with the requirements of subsection (a) of this section shall include a statement showing the status of all pending construction change orders, other pending change directives and approved changes to the original contract or subcontract. Such statement shall identify the pending construction change orders and other pending change directives, and shall include the date such change orders and directives were initiated, the costs associated with their performance and a description of any work completed. As used in this section, “pending construction change order” or “other pending change directive” means an authorized directive for extra work that has been issued to a contractor or a subcontractor.

(c)

(1) If payment is not made by an owner in accordance with the requirements of subdivision (1) of subsection (a) of this section or any applicable construction contract, such contractor, subcontractor or supplier shall set forth its claim against the owner through notice by registered or certified mail. All amounts due from the owner pursuant to this subsection and subdivision (1) of subsection (a) of this section shall be limited to the amount owed to the contractor by the owner for work performed under the contract at the date such notice is provided.

(2) If payment is not made by a contractor in accordance with the requirements of subdivision (2) of subsection (a) of this section or any applicable construction contract, the subcontractor or supplier shall set forth its claim against the contractor through notice by registered or certified mail.

(3) If payment is not made by a subcontractor or supplier in accordance with the provisions of subdivision (3) of subsection (a) of this section, the subcontractor or supplier to whom money is owed shall set forth its claim against the subcontractor or supplier who has failed to comply with the provisions of said subdivision (3) through notice by registered or certified mail.

(4) Ten days after the receipt of any notice specified in subdivisions (1), (2) and (3) of this subsection, the owner, contractor, subcontractor or supplier, as the case may be, shall be liable for interest on the amount due and owing at the rate of one per cent per month. Such interest shall accrue beginning on the date any such notice is received. In addition, such owner, contractor, subcontractor or supplier, upon written demand from the party providing such notice, shall be required to place funds in the amount of the claim, plus such interest of one per cent per month, in an interest-bearing escrow account in a bank in this state, provided such owner, contractor, subcontractor or supplier may refuse to place the funds in escrow on the grounds that the party making such demand has not substantially performed the work or supplied the materials according to the terms of the construction contract or that the funds so demanded are not due under the owner’s contract with the contractor. In the event that such owner, contractor, subcontractor or supplier refuses to place such funds in escrow and such owner, contractor, subcontractor or supplier is found to have unreasonably withheld payment due a party providing such notice, such owner, contractor, subcontractor or supplier shall be liable to the party making demand for payment of such funds and for reasonable attorneys’ fees plus interest on the amount due and owing at the rate of one per cent per month. In addition, any owner, contractor, subcontractor or supplier who is found to have withheld payments to a party providing such notice in bad faith shall be liable for ten per cent damages.

(d) No payment may be withheld from a subcontractor or supplier for work performed or materials furnished because of a dispute between a contractor and another contractor, subcontractor or supplier.

(e) This section shall not be construed to prohibit progress payments prior to final payment of the contract and is applicable to all subcontractors and suppliers for material or labor whether they have contracted directly with the contractor or with some other subcontractor on the work. Each owner that enters into a contract under this section and fails or neglects to make payment to a contractor for labor and materials supplied under a contract, as required pursuant to this section, shall, upon demand of any person who has not been paid by the contractor for such labor and materials supplied in the performance of the work under the contract, promptly pay the person for such labor or materials. Demand for payment shall be served on the owner and a copy of each demand shall be sent to the contractor by certified mail, return receipt requested to any address at which the owner and contractor conduct business. If the owner fails to make such payment, the person shall have a direct right of action against the owner in the superior court for the judicial district in which the project is located. The owner’s obligations for direct payments to the contractor, subcontractors or suppliers giving notice pursuant to this section shall be limited to the amount owed to the contractor by the owner for work performed under the contract at the date such notice is provided.

No construction contract may provide for any retainage in an amount that exceeds five per cent of the estimated amount of a progress payment for the life of the construction project. All retainage shall be paid by the owner not later than thirty days after the issuance of a certificate of final completion by the owner or the owner’s authorized representative or not later than thirty days after the equivalent written acceptance of the construction project work by the owner.

(a) Any provision in a construction contract or any periodic lien waiver issued pursuant to a construction contract that purports to waive or release the right of a contractor, subcontractor or supplier engaged to perform services, perform labor or furnish materials under the construction contract to (1) claim a mechanic’s lien, or (2) make a claim against a payment bond, for services, labor or materials which have not yet been performed and paid for shall be void and of no effect.

(b) Notwithstanding any provision of subsection (a) of this section, this section shall not be construed to prohibit (1) the subordination of a mechanic’s lien to the lien of a mortgage or security interest, or (2) the enforcement of an agreement to subordinate a mechanic’s lien to the lien of a mortgage or security interest.

Any provision in a construction contract for the performance of work on a construction site located in this state that purports to require that any dispute arising under the construction contract be mediated, arbitrated or otherwise adjudicated in or under the laws of a state other than Connecticut shall be void and of no effect, regardless of whether the construction contract was executed in this state.

At or before the commencement of any work under a construction contract, the owner shall post and maintain in a conspicuous place at the construction site (1) the name and address of the owner and any agent authorized to accept service of a certificate of mechanic’s lien on behalf of the owner in any action, suit or proceeding for the enforcement of any obligation of the owner arising out of the construction contract, (2) the volume and page number of the land records of the town in which such property is located, and (3) if a payment bond exists, the name and address of the surety that issued the payment bond.

No surety shall be obligated to include in the payment of a bond issued by such surety any interest, costs, penalties or attorneys’ fees imposed on the principal of such bond under any provision of sections 42-158i to 42-158o, inclusive, or 49-33 or subsection (a) of section 52-249, unless the terms of the bond expressly reference said sections and subsection and state that such surety is obligated to pay such interest, costs, penalties or attorneys’ fees.

An escrow account shall be established for all retainage, subject to the following:

(a) An escrow account shall be established in state or national banks domiciled in this state or in savings and loan associations domiciled in this state.

(b) The owner shall provide a monthly report to the contractor as to the value of the retainage being held in the escrow account and any additions to or payments from the escrow account. Upon request by a subcontractor, the contractor shall make such monthly report available for review by the subcontractor. Withdrawals from the escrow account shall be made only subject to approval of the owner.

(c) If the owner has entered into more than one construction contract with the same contractor requiring the maintenance of escrow accounts, the owner may elect to combine the amounts held as retainage under each contract into one or more escrow accounts or may establish a separate escrow account for each contract.

(d) The escrow account shall be terminated upon substantial or final completion of all work in accordance with the terms of the construction contract and full payment to the contractor.

(e) All fees and expenses related to maintaining the escrow account shall be paid by the owner.

(f) The form and provisions of the escrow account shall be included in all solicitations for construction services and shall be provided to the contractor and subcontractor prior to entering into a contract with the owner. Upon request by a subcontractor, the contractor shall make such form and provisions available for review by the subcontractor. Failure to comply with the provisions of this subsection shall not give rise to a defense to the enforcement of a contract.

(g) If an owner fails to deposit retainage that is withheld or to release retainage as required by public act 03-167 *, the owner shall pay to the contractor an additional one and one-half per cent of the amount not deposited or released for each month or fraction of a month, until the retainage amount is paid in full.

(h) An owner may accept securities in lieu of retainage from a contractor and a contractor may accept securities in lieu of retainage from a subcontractor.

(i) For the purposes of this section, “owner” means “owner”, as defined in subdivision (1) of section 42-158i.

The provisions of section 42-158p do not apply to construction contracts for residential property containing four or fewer dwelling units or to construction contracts of less than twenty-five thousand dollars total value or to construction contracts relating to any public building or public work of the state or a municipality or other political subdivision of the state.

In an action to enforce the provisions of section 42-158k, 42-158m or 42-158p, a court may award court costs and reasonable attorney’s fees to the prevailing party.

(a) For the purposes of this section, “construction contract” means any contract entered into on or after October 1, 2011, for construction, renovation or rehabilitation in this state, including any improvements to real property that are associated with such construction, renovation or rehabilitation, or any subcontract for construction, renovation or rehabilitation between an owner and a contractor, a contractor and a subcontractor or a subcontractor and another subcontractor. “Construction contract” does not include (1) any public works or other contract entered into with this state, any other state or the United States, or (2) a contract or project funded or insured by the United States Department of Housing and Urban Development.

(b) After a party to a construction contract has made a demand for arbitration pursuant to the dispute resolution provision of the construction contract, such party may, not more than once and at any time before a final award is rendered by the arbitration panel, send by certified mail, return receipt requested, to the opposing party or the opposing party’s attorney a written offer of compromise, signed by the party or the party’s attorney and directed to the opposing party or attorney, offering to settle all of the claims set forth in the arbitration for a sum certain. Within thirty days after being notified of the offer of compromise and before a final award is rendered by the arbitration panel, the opposing party or the opposing party’s attorney may reply, by certified mail, return receipt requested, with a written acceptance of the offer of compromise agreeing to settle all claims set forth in the arbitration for the sum certain specified in the offer of compromise. If the opposing party or attorney does not accept the offer of compromise within thirty days after being notified of the offer of compromise and before a final award is rendered by the arbitration panel, the offer of compromise shall be considered rejected and not subject to acceptance under this section.

(c) After issuance of a final arbitration award and upon the application of any party to a construction contract to confirm, vacate, modify or correct the award, any party who made an offer of compromise pursuant to subsection (b) of this section which the opposing party failed to accept may file with the court proof of the party’s offer of compromise. If the court confirms, modifies or corrects the arbitration award and ascertains from the record that the party has recovered an arbitration award in an amount equal to or greater than the sum certain specified in the party’s offer of compromise, the court shall add to the amount of the award eight per cent annual interest on the total amount of such award, in addition to any interest awarded by the arbitrator. The interest shall be computed from the date the original arbitration demand for the subject proceeding was filed. The court shall further award reasonable attorney’s fees and costs for bringing the action to confirm, vacate, modify or correct the award and shall render judgment accordingly.

(d) This section shall not be interpreted to abrogate or modify the contractual rights of any party concerning the recovery of attorney’s fees in accordance with the provisions of any written contract between the parties to the arbitration.

(a) Except as provided in section 4a-72, each state department and agency shall pay interest at a rate equal to the monthly effective yield for the Short Term Investment Fund administered by the Treasurer pursuant to sections 3-27a to 3-27f, inclusive, on amounts due on written contracts for public works, personal services, goods and services, equipment and travel, whenever such department or agency fails to make timely payment.

(b) For the purposes of this section, payment shall be timely if:

(1) A check or warrant is mailed or delivered on the date specified for the amount specified in the applicable contract documents, or, if no date is specified, within forty-five days of receipt of a properly completed claim or receipt of goods and services, whichever is later; or

(2) for any amount that is required to be withheld under state or federal law, a check or warrant is mailed or delivered in the proper amount on the date the amount may be released under the applicable law.

(a) Section 4a-71 shall not apply to the following:

(1) Interagency or intergovernmental transactions;

(2) amounts payable to employees or prospective employees of state departments or agencies as reimbursement for expenses;

(3) claims subject to a good faith dispute, if before the date of timely payment, notice of the dispute is:

(A) Sent by certified mail;

(B) personally delivered; or

(C) sent in accordance with any procedure in the contract;

(4) contracts entered into before October 1, 1984;

(5) contracts related to highway or road construction, reconstruction or maintenance; or

(6) claims, contracts or projects that are to be paid for exclusively with federal funds.

(b) As used in subdivision (3) of subsection (a) of this section, “good faith dispute” means:

(1) A contention by the state that goods delivered or services rendered were:

(A) Of less quantity or quality than ordered or specified by contract;

(B) faulty; or

(C) installed improperly; or

(2) any other reason giving cause for the withholding of payment by the state until such dispute is settled.

(a) Any state agency required to pay late payment penalties under section 4a-71 shall pay the penalties from funds designated for administrative costs of the agency receiving the public works, personal services, goods and services, equipment or travel. The penalties shall not be paid from other funds of the state.

(b) Any amount of an interest penalty which remains unpaid at the end of any thirty-day period shall be added to the principal amount of the debt and, thereafter, interest penalties shall accrue on that amount.

(c) In instances where a claim is filled out incorrectly or where there is any defect or impropriety in a claim submitted, the state department or agency shall contact the vendor within ten days. An error on the vendor’s claim, if corrected within five business days of his being so contacted and within the payment period as determined pursuant to section 4a-71, shall not result in the vendor being paid after the expiration of the period for timely payment.
Conn. Gen. Stat. § 4a-73

Notwithstanding any regulation or order of the Public Utilities Regulatory Authority which permits the imposition of a late payment charge by a public service company on customer bills, the state and any political subdivision thereof:

(1) Shall not be subject to such charge on any bill which accrued on or before June 5, 1975; and

(2) shall not be subject to such charge on any bill which accrues after said date, for the first sixty days after the due date of such bill.

The Comptroller shall prescribe the manner in which claims for supplies, materials, equipment and contractual services purchased or contracted for shall be submitted, examined, approved and paid. There shall continue to be, from the appropriations of the state agencies, a Department of Administrative Services Revolving Fund of such amount as the Commissioner of Administrative Services, with the approval of the Governor, determines to be necessary to defray such current expenses for supplies, materials, equipment and contractual services as will be incurred by the commissioner in anticipation of the future requirements of state agencies or under other conditions necessitating the payment of such expense prior to the determination of the legal or equitable claims to be charged on account of such expenses to the appropriations of such agencies. Claims on account of such expenses shall be paid from said revolving fund. Any such expenses which cannot be specifically allocated to particular state agencies shall be apportioned monthly by the commissioner, with the approval of the Standardization Committee, among the state agencies for which they were incurred in such manner as the commissioner deems equitable. All funds received in payment of such claims shall be credited to said revolving fund.

(a) When any public work is awarded by a contract for which a payment bond is required by section 49-41, the contract for the public work shall contain the following provisions:

(1) A requirement that the general contractor, within thirty days after payment to the contractor by the state or a municipality, pay any amounts due any subcontractor, whether for labor performed or materials furnished, when the labor or materials have been included in a requisition submitted by the contractor and paid by the state or a municipality;

(2) a requirement that the general contractor shall include in each of its subcontracts a provision requiring each subcontractor to pay any amounts due any of its subcontractors, whether for labor performed or materials furnished, within thirty days after such subcontractor receives a payment from the general contractor which encompasses labor or materials furnished by such subcontractor.

(b) Each payment requisition submitted in accordance with the requirements of subsection (a) of this section, except for any such payment requisition submitted pursuant to a contract administered by or in conjunction with the Department of Transportation, shall include a statement showing the status of all pending construction change orders, other pending change directives and approved changes to the original contract or subcontract. Such statement shall identify the pending construction change orders and other pending change directives, and shall include the date such change orders and directives were initiated, the costs associated with their performance and a description of any work completed. As used in this section, “pending construction change order” or “other pending change directive” means an authorized directive for extra work that has been issued to a contractor or a subcontractor.

(c) If payment is not made by the general contractor or any of its subcontractors in accordance with such requirements, the subcontractor shall set forth his claim against the general contractor and the subcontractor of a subcontractor shall set forth its claim against the subcontractor through notice by registered or certified mail. Ten days after the receipt of that notice, the general contractor shall be liable to its subcontractor, and the subcontractor shall be liable to its subcontractor, for interest on the amount due and owing at the rate of one per cent per month. In addition, the general contractor, upon written demand of its subcontractor, or the subcontractor, upon written demand of its subcontractor, shall be required to place funds in the amount of the claim, plus interest of one per cent, in an interest-bearing escrow account in a bank in this state, provided the general contractor or subcontractor may refuse to place the funds in escrow on the grounds that the subcontractor has not substantially performed the work according to the terms of his or its employment. In the event that such general contractor or subcontractor refuses to place such funds in escrow, and the party making a claim against it under this section is found to have substantially performed its work in accordance with the terms of its employment in any arbitration or litigation to determine the validity of such claim, then such general contractor or subcontractor shall pay the attorney’s fees of such party.

(d) No payment may be withheld from a subcontractor for work performed because of a dispute between the general contractor and another contractor or subcontractor.

(e) This section shall not be construed to prohibit progress payments prior to final payment of the contract and is applicable to all subcontractors for material or labor whether they have contracted directly with the general contractor or with some other subcontractor on the work.

When any public work is awarded by a contract for which a payment bond is required by section 49-41 and such contract contains a provision requiring the general or prime contractor under such contract to furnish a performance bond in the full amount of the contract price, the following shall apply:

(1) In the case of a contract advertised by the Department of Administrative Services or any other state agency, except as specified in subdivision (2) of this section, (A) the awarding authority shall not withhold more than seven and one-half per cent from any periodic or final payment which is otherwise properly due to the general or prime contractor under the terms of such contract, provided, when fifty per cent of the contract is completed, said amount shall be reduced to five per cent, and (B) any such general or prime contractor shall not withhold from any subcontractor more than (i) seven and one-half per cent from any periodic or final payment which is otherwise due to the subcontractor, or (ii) the amount withheld by the awarding authority from such general or prime contractor under subparagraph (A) of this subdivision, whichever is less, provided, when fifty per cent of the contract is completed, said amount shall be reduced to five per cent. Payment shall be made not later than ninety days after a complete application for payment demonstrating that fifty per cent contract completion has been submitted to the awarding authority. Notwithstanding the provisions of this subdivision (1), the awarding authority shall establish an early release program with respect to periodic payments by general or prime contractors to subcontractors.

(2) In the case of a contract advertised by the state Department of Transportation, (A) the department shall not withhold more than two and one-half per cent from any periodic or final payment which is otherwise properly due to the general or prime contractor under the terms of such contract, and (B) any such general or prime contractor shall not withhold more than two and one-half per cent from any periodic or final payment which is otherwise due to any subcontractor.

(3) If the awarding authority is a municipality, (A) the municipality shall not withhold more than five per cent from any periodic or final payment which is otherwise properly due to the general or prime contractor under the terms of such contract, and (B) any such general or prime contractor shall not withhold more than five per cent from any periodic or final payment which is otherwise due to any subcontractor.

Any person contracting with the state shall make payment to any subcontractor employed by such contractor within thirty days of payment by the state to the contractor for any work performed or, in the case of any contract entered into on or after October 1, 1986, for materials furnished by such subcontractor, provided such contractor may withhold such payment if such contractor has a bona fide reason for such withholding and if such contractor notifies the affected subcontractor, in writing, of his reasons for withholding such payment and provides the state board, commission, department, office, institution, council or other agency through which such contractor had made the contract, with a copy of the notice, within such thirty-day period.

The commissioner shall pay any sum due any contractor under any contract awarded by him not later than sixty days after its completion and acceptance. After such sixty-day period, interest shall begin to run in favor of the contractor at the rate of six per cent per annum on the unpaid balance.