Writing Your Own Contracts as a Residential Contractor
The Cromeens Law Firm
August 6, 2026
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, codified at KRS 371.400 through 371.425, exists to fix that. It sets firm payment deadlines, caps how much retainage can be withheld, and gives you real financial leverage when you don’t get paid on time. It establishes clear rules for when you should get paid, giving you legal standing to fight back against unnecessary delays.
This guide walks through Kentucky’s prompt payment laws, the exact deadlines and interest penalties it creates, the retainage rules most contractors don’t know exist, and the one notice requirement that can make or break your ability to get your money on time. Understanding these rules is the first step in protecting your bottom line.
The Kentucky Fairness in Construction 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 construction projects, preventing companies from holding onto your money longer than necessary.
It outlines specific obligations for project owners, prime contractors, and subcontractors, creating a chain of accountability that helps keep projects financially healthy
The law applies to most private construction contracts entered into after June 25, 2007, and to most public construction projects in Kentucky.
Two categories fall outside the Act: residential construction projects and certain regulated utility projects under KRS Chapter 278. If your project is commercial, industrial, institutional, or public, assume the Act applies.
As of June 27, 2025, an additional layer of protection kicked in for large private jobs: private construction contracts valued at $2 million or more now require retainage to be held in an interest-bearing escrow account, with any interest earned paid out to the contractor at final completion. Any contract clause that tries to waive this escrow requirement is void and unenforceable.
The Act sets two critical deadlines that every contractor in Kentucky should memorize, and a third for a specific category of public owners. These timelines are not suggestions; they are legal requirements.
A project owner must pay a prime contractor within 30 business days of receiving a timely, properly completed, and 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.
If you’re contracting directly with a public postsecondary institution or a Board of Education, that deadline extends to 45 business days instead of 30. It’s a narrow exception, but it matters if you’re bidding on public education work.
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. The same 15-day rule applies at every tier below that too, from sub to sub-sub.
This notice is the most overlooked requirement in the entire statute, and missing it can cost you the interest you’re legally owed.
If an owner doesn’t pay within the 30-day (or 45-day) deadline, you don’t automatically start collecting interest. To preserve your right to it, Kentucky law requires you to send the owner written notice by certified mail, return receipt requested, within 25 business days after you submitted your payment request. That notice must state the balance due and the date interest begins accruing on the unpaid amount.
Miss that 25-day window and you may lose your right to the statutory 12% interest against the owner, even though the underlying payment is still late.
Subcontractors get a break here: the certified-mail notice requirement only applies to contractors seeking interest from owners. If a contractor is late paying you as a subcontractor, interest accrues automatically without you needing to send any notice first.
Put this on your calendar the day you submit every pay application. It’s a five-minute task that protects real money.
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.
If an owner or prime contractor fails to pay you within the legally mandated timeframe, the unpaid balance begins to accrue interest 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.
Retainage is a percentage of your earned payments that owners or contractors withhold until the construction project is successfully completed, held as a financial safeguard against unfinished or defective work. It is one of the most heavily regulated pieces of Kentucky’s Fairness in Construction Act, and one of the least understood by the contractors it’s meant to protect.
The rules exist to stop owners and general contractors from using retainage as an excuse for indefinite cash-flow delays. Instead of leaving that percentage open-ended, the Act ties it to a tiered structure based on how much of the project is actually complete, giving you a clear, enforceable ceiling on how much can be held back at any stage.
Here’s how it works in practice. Say you’re on a $100,000 contract.
Once the project is substantially complete, meaning it’s usable even if a few small items remain, they have 30 days to release your retainage. The only thing they can still hold back is up to double the estimated cost of whatever’s left on the punch list. Everything else comes back to you.
If you’re a general contractor, once the owner releases retainage to you, you have 15 business days to pass each subcontractor their share, as long as they submitted a proper, undisputed pay request.
If retainage doesn’t come back on time, it starts earning 12% annual interest automatically, starting the first business day after it was due. You don’t have to ask for it, it accrues on its own.
Some contracts include a clause saying a contractor only has to pay you once they get paid themselves. Kentucky allows that language, but it doesn’t override any of the deadlines or interest rules above. If a contractor tries to use a pay-if-paid clause in bad faith to avoid paying you what you’re owed, they can still be on the hook for interest and even your attorney’s fees.
Interest is automatic, attorney’s fees are not, they only kick in if you’re forced to sue and win on a bad faith finding.
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.
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.
The payment clocks in the Act don’t start until you submit a “proper invoice.” While the law doesn’t provide a strict The 15, 30, and 45-day 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:
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.
Kentucky 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.
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:
This documentation will be invaluable if you need to prove your case in court or demonstrate that a payment was withheld in bad faith.
If you’d rather have a lien in place as additional leverage while a payment dispute plays out, our guide to filing a mechanics lien in Kentucky walks through that process, and our right to cure guide covers what happens when a dispute is actually about the work itself rather than the money.
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. Calendar your deadlines the day you submit every pay application, keep your invoicing airtight, and don’t let the 25-day notice window pass you by. 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. If a payment dispute is already underway, talk to our team about your options before that window closes.
Originally posted October 6, 2025. Last updated July 23, 2026.
Karalynn Cromeens is the Owner and Managing Partner of The Cromeens Law Firm, PLLC, with over 17 years of experience in construction, real estate, and business law. A published author and passionate advocate for contractors, she has dedicated her career to protecting the businesses her clients have built. Karalynn is on a mission to educate subcontractors on their legal rights, which inspired her books Quit Getting Screwed and Quit Getting Stiffed, as well as her podcast and The Subcontractor Institute.
