Understanding Tennessee Contractor Prompt Payment Law

Timely payment is critical in the construction industry to ensure smooth operations and fair practices. For contractors and subcontractors operating in Tennessee, the state’s contractor prompt payment law, codified under Tennessee Code Annotated § 66-34-101 et seq., provides clarity and safeguards regarding payment terms. This article breaks down the essential aspects of this law, including how it applies to private and public projects, the required notices, deadlines, interest on late payments, and exceptions.

What Is Tennessee’s Contractor Prompt Payment Law?

Tennessee’s contractor prompt payment law ensures that contractors, subcontractors, and suppliers get paid on time for the work they complete. The law establishes clear guidelines for payment deadlines and penalties for late payments. Understanding these provisions is crucial to protecting your rights and ensuring compliance, whether you’re working on private or public projects.

Prompt Payment for Private Projects

Private construction projects, which include residential and commercial developments, are subject to specific payment requirements under Tennessee law. Below are the details contractors and subcontractors need to keep in mind when working on private projects.

1. Notice Requirements

For private projects, the contractor must properly invoice the property owner or developer to trigger payment obligations. Subcontractors also need to ensure that their payment applications or invoices are submitted to the general contractor as specified in their contract. While there is no universally required notice document to initiate payments, lien rights enforcement requires additional steps, including pre-lien notices, as outlined in Tennessee property lien laws.

2. Time Frame for Payment

Under § 66-34-103 of the statute, once a contractor or subcontractor has submitted a proper invoice or payment application, payment is due as follows:

• Owners to Contractors: Payments must be made within 30 days of the later of either receiving a proper invoice or the payment due date established in the contract.
• Contractors to Subcontractors: Contractors have 30 days to pay their subcontractors after receiving payment from the owner. These terms can be adjusted by mutual agreement but must comply with the law’s minimum standards.

3. Interest on Late Payments

If payments are not made within the specified timeframe, the unpaid amount accrues interest at a rate of 1.5% per month, unless otherwise agreed to in the contract. This penalty aims to discourage payment delays and provide relief to unpaid parties.

4. Exceptions

There are certain instances where payment may be withheld. For example:

• Payments can be withheld for work that is defective, incomplete, or not performed per contract requirements.
• Owners or contractors may withhold payment in good faith to resolve disputes regarding the scope or quality of work. However, disputes must be well-documented, and payment for undisputed portions must still be made.

Prompt Payment for Public Projects

Public construction projects involve government entities as owners, and Tennessee law has specific provisions for these types of projects.

1. Notice Requirements

On public projects, contractors typically must submit invoices or payment applications to the awarding government agency to initiate payment. Subcontractors should follow their contractual agreement with the prime contractor. For subcontractors, preserving rights to recover unpaid amounts may require submitting a Notice of Claim under any applicable payment bond.

2. Time Frame for Payment

For contracts involving government agencies:

• The public owner must pay the contractor within 45 days after receiving a proper invoice unless otherwise specified in the contract, per § 66-34-103(b).
• Contractors must pay their subcontractors within 30 days after receiving payment from the public owner.

3. Interest on Late Payments

As with private projects, late payments accrue interest at a rate of 1.5% per month, unless an alternative rate is agreed upon in the contract. This provision ensures that contractors and subcontractors are adequately compensated for delayed payments.

4. Exceptions

Similar to private projects, exceptions to prompt payment rules for public contracts include situations such as:

• Disputes over the quality, quantity, or timeliness of the work.
• Withholding of payments based on formal notices of defective or incomplete work.
• Payment delays caused by failure to meet contract requirements or statutory compliance.

Why Tennessee’s Prompt Payment Law Matters

Tennessee’s prompt payment law provides essential protections for contractors and subcontractors, fostering fairness across the construction industry. Whether you’re working on private or public projects, familiarity with the law helps ensure you get paid on time and can respond appropriately when disputes arise.

However, it’s important to remember that protecting your payment rights also requires proper documentation, including accurate invoices, written contracts, and timely notices when disputes or payment delays occur.

Being proactive and understanding Tennessee Code Annotated § 66-34-101 et seq. enables contractors and construction professionals to uphold their rights and avoid costly delays. Give us a call at 713-715-7334 and we can talk though your specific situation.