Don’t Get Paid Late: A Contractor’s Guide to Kentucky Law

Waiting for payment is one of the biggest frustrations in the construction industry. When cash flow slows to a trickle, it can jeopardize your ability to pay suppliers, meet payroll, and keep your business running smoothly. Fortunately, Kentucky has laws designed to protect you. The Kentucky Fairness in Construction Act establishes clear rules for when you should get paid, giving you legal standing to fight back against unnecessary delays.

This guide will walk you through Kentucky’s prompt payment laws. We will explain the specific timelines for payment, the penalties for late payments, and the practical steps you can take to ensure you get your money on time. Understanding these rules is the first step in protecting your bottom line.

What is the Kentucky Fairness in Construction Act?

At its core, the Act is designed to ensure a fair and timely flow of funds from the project owner down to every subcontractor and supplier. It sets firm deadlines for payments on private construction projects, preventing companies from holding onto your money longer than necessary.

The law applies to all private construction contracts entered into after June 25, 2007. It outlines specific obligations for project owners, prime contractors, and subcontractors, creating a chain of accountability that helps keep projects financially healthy.

Key Payment Timelines You Need to Know

The Act sets two critical deadlines that every contractor in Kentucky should memorize. These timelines are not suggestions; they are legal requirements.

Owner to Prime Contractor: 30 Business Days

A project owner must pay a prime contractor within 30 business days of receiving an undisputed invoice. The clock starts ticking the moment you submit a “proper invoice” for completed work. This provision prevents owners from indefinitely delaying payment without a valid reason, providing you with a predictable payment schedule.

Prime Contractor to Subcontractor: 15 Business Days

Once a prime contractor receives payment from the project owner, they have a responsibility to pay their subcontractors and suppliers promptly. The law gives them 15 business days from the date they receive funds to distribute payment to their downstream partners. This ensures that money flows efficiently through the project, helping subcontractors manage their own finances effectively.

What Happens When a Payment is Late?

The Kentucky Fairness in Construction Act isn’t just a set of guidelines; it has teeth. The law includes significant penalties for those who fail to meet their payment obligations, giving you powerful leverage to collect what you are owed.

Interest on Late Payments: 12% Per Annum

If an owner or prime contractor fails to pay you within the legally mandated timeframe, the unpaid balance begins to accrue interest. The interest rate is set at 12% per year, or 1% per month. This penalty compensates you for the financial strain caused by the delay and creates a strong financial incentive for the paying party to settle their account quickly. This interest applies automatically to any late payment, whether it’s for $1,000 or $100,000.

If payment issues persist despite these protections, our construction debt collection services can help you recover outstanding invoices efficiently.

Recovering Attorney’s Fees in Disputes

Sometimes, a payment dispute can’t be resolved with a simple phone call. If you are forced to take legal action to enforce your payment rights and the court finds that the non-paying party acted in “bad faith,” you may be able to recover more than just the principal amount and interest.

A court can award the prevailing party their reasonable attorney’s fees. “Bad faith” generally means the other party withheld payment without a legitimate reason, knowingly ignored their contractual obligations, or engaged in dishonest conduct. This provision helps level the playing field, making it financially feasible for smaller contractors to stand up for their rights against larger entities.

Our construction contract disputes attorneys can help you navigate payment litigation and pursue bad faith claims when necessary.

Practical Steps to Protect Your Payment Rights

Knowing the law is one thing; using it to your advantage is another. You can take several proactive steps to protect your cash flow and ensure you are in the strongest possible position if a dispute arises.

Having your contracts professionally reviewed through construction contract review services can help ensure proper payment terms and dispute procedures are included from the start.

1. The Power of a “Proper Invoice”

The payment clocks in the Act don’t start until you submit a “proper invoice.” While the law doesn’t provide a strict definition, a proper invoice should always contain, at a minimum:

• Your company’s name, address, and contact information.
• The name and address of the party you are billing.
• The project name or identifier.
• A clear description of the work performed or materials supplied during the billing period.
• The total amount due.
• An invoice number and date.

Be meticulous with your invoicing. Any missing information could give the paying party an excuse to reject the invoice and delay the payment timeline. Use a consistent, professional format for all your invoices.

2. Understand “Good-Faith” Disputes

The law allows a party to withhold payment for a “good-faith dispute” over the quality of the work or a contract disagreement. However, this is not a loophole for avoiding payment. The dispute must be legitimate.

If an owner or prime contractor withholds payment, they must notify you in writing, explaining the reasons for the dispute. Importantly, they can only withhold the amount directly related to the disputed work. For example, if they dispute a $5,000 charge on a $50,000 invoice, they must still pay the undisputed $45,000 portion on time.

3. Document Everything

In any payment dispute, the person with the best records usually wins. From the moment you sign a contract, document every interaction. Keep detailed records of:

• All contracts and change orders.
• Copies of every invoice you send and proof of delivery (e.g., certified mail receipt or email read receipt).
• All correspondence related to the project, especially anything concerning payments or work quality.
• Daily reports, photos, and other evidence of your work progress.

This documentation will be invaluable if you need to prove your case in court or demonstrate that a payment was withheld in bad faith.

Secure Your Payments and Your Business

The Kentucky Fairness in Construction Act is a powerful tool for every contractor in the state. By understanding the payment timelines, penalties for late payment, and the importance of proper invoicing, you can take control of your cash flow.

Be proactive. Review your contracts, standardize your invoicing process, and keep meticulous records. When you know your rights and have the documentation to back them up, you can address payment issues from a position of strength, ensuring you get paid fairly and on time for the hard work you do.