Understanding the Georgia Construction Prompt Payment Law

The Georgia Construction Prompt Payment Law is a critical piece of legislation designed to ensure fairness and predictability in financial transactions within the construction industry. This legal framework promotes on-time payments for contractors, subcontractors, and suppliers, helping mitigate cash flow issues that often plague construction projects.

Below, we break down the key aspects of this law, including its scope, accrual of interest, notice requirements, and legal remedies. 

What Projects Does the Law Apply To?

The Georgia Construction Prompt Payment Law applies to both public and private construction projects in the state of Georgia. Contractors, subcontractors, suppliers, and other stakeholders engaged in these projects may invoke the protections of this statute.

Whether you’re involved in commercial development, public infrastructure improvement, or residential construction, the law ensures that you receive payments on time once your work is completed in accordance with the contract. 

Example: If a subcontractor completes electrical wiring for a commercial building project and submits an invoice, the contractor is obligated under the law to pay promptly, as outlined in the contract terms. 

When Does Interest Begin to Accrue?

The law specifies that interest on unpaid amounts begins to accrue as soon as the payment becomes overdue. For contractors and subcontractors, the timeline for payment is generally dictated by the payment terms agreed upon in the contract.

If no specific timeframe is outlined in the agreement, Georgia law typically sets the standard at 30 days from the date of the invoice submission.

For example, if a contractor submits an invoice for $50,000 on January 1, and payment is not made by January 31 (assuming a 30-day payment agreement), interest would start accruing on February 1.

What Is the Interest Rate for Late Payments?

The Georgia Construction Prompt Payment Law requires payments to include an interest rate of 1% per month (or 12% annually) on unpaid invoices. This relatively high rate is intended to discourage delays and incentivize timely payments.

Scenario: A subcontractor completes work valued at $100,000 but experiences a delay in payment. If the payment is overdue by two months, the contractor may claim $2,000 in interest ($100,000 x 1% per month x 2 months).

What Are the Notice Requirements?

Before enforcing rights under the Georgia Construction Prompt Payment Law, notice requirements must be adhered to:

1. Invoice Submission: Contractors and subcontractors should submit their invoices according to the proper channels outlined in their contract. Always retain proof of submission, such as an email confirmation or a signed invoice receipt.
2. Demand for Payment: If payment is not made within the contractually agreed time frame, the unpaid party is encouraged to issue a formal written demand for payment, including details of the overdue amount and applicable interest.

Ensuring clear, documented communication is critical to preserve your rights under this law.

When Can Payment Be Rightfully Withheld?

Although Georgia’s prompt payment laws aim to protect timely payments, there are legitimate circumstances in which payment may be withheld. Common reasons include:

• Defective Work: If the work performed does not meet contract specifications.
• Incomplete Work: If the contractor or subcontractor has not fulfilled their contractual obligations.
• Disputed Amounts: If there is a disagreement regarding the amount billed or the scope of work completed.
• Noncompliance with Contract Terms: If a contractor fails to provide necessary lien waivers or required project documentation.

Example: A contractor might withhold payment if a roofing subcontractor has not remedied leaks in their installed work, as the quality of the completed work does not meet the agreed standards.

Are Attorney Fees Recoverable in a Lawsuit?

The law provides a remedy for recovering attorney fees in the event of a lawsuit to enforce prompt payment. If the unpaid party prevails in the legal action, they are entitled to receive reasonable attorney fees in addition to the outstanding payment and accrued interest.

This provision offers an added incentive for contractors and subcontractors to assert their rights when facing non-payment.

Illustration: If a supplier files a lawsuit to recover an unpaid $20,000 invoice and ultimately succeeds in court, the contractor may also be ordered to cover the supplier’s legal costs, which can significantly add to the financial burden of the non-paying party.

Practical Tips for Ensuring Compliance

To avoid disputes and ensure compliance with the Georgia Construction Prompt Payment Law, consider the following:

• Draft Clear Contracts: Specify payment terms, deadlines, and the dispute resolution process in your agreements. Clarity upfront reduces potential misunderstandings.
• Submit Accurate and Timely Documentation: Ensure invoices include all required details, such as project name, work completed, and breakdown of costs.
• Keep Records: Document all communications related to invoices and payment demands for future reference.
• Communicate Early: If you anticipate delays in work or payment, notify the affected parties promptly to maintain goodwill and resolve issues quickly.

Need Legal Help? Contact a Construction Law Attorney

The Georgia Construction Prompt Payment Law is a powerful tool for ensuring timely financial transactions in the construction sector. Understanding its scope and the remedies it offers can help contractors, subcontractors, and suppliers stay proactive in safeguarding their rights.

By adhering to the law’s requirements and maintaining open, professional communication, stakeholders can reduce disputes and focus on completing successful projects. Give us a call at 713-715-7334 if you have any questions.