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Prompt Pay Acts in Maryland Provide Protection to Contractors

The State of Maryland has two Prompt Pay Acts available to all contractors, and an additional prompt payment mechanism available to Disadvantaged Business Enterprises (“DBE”) and Minority Business Enterprises (“MBE”).

A. Prompt Payment Act for State Projects

The State Prompt Payment of Subcontractors Act is found in the Code of Maryland Regulation (“COMAR”), at the following website: http://www.dsd.state.md.us/COMAR/SubtitleSearch.aspx?search=21.10.08.*  These regulations require a general contractor to pay any undisputed amounts to a subcontractor within 10 days of receiving a payment from the State. If the general contractor withholds payment of a disputed amount, that contractor must give notice to the subcontractor as to the basis of the dispute and provide a copy of the notice to the procurement officer, as well as to whomever issued the payment to the prime contractor. If a prime contractor fails to make payment or provide the required notice, there is a specific administrative process that a subcontractor can initiate with the procurement officer to secure payment, which begins by reporting the nonpayment to the procurement officer in writing. The administrative process that follows this written report by a subcontractor is outlined in the applicable COMAR sections. This process is very detailed and best practices require that any party subject to this process review the appropriate regulations.   This same process is also available to second-tier subcontractors for use in payment disputes with first-tier subcontractors.

B. Prompt Payment on Private Projects

The Maryland Prompt Payment Act is found at Md. Code Ann., Real Prop. §9-301 et seq. (2010).  It is applicable to private projects and requires an owner or higher-tier contractor to make prompt payment of undisputed amounts within a specific period. Unless otherwise stated in the contract, an owner must pay the contractor within 30 days after the occupancy permit is granted or the day the owner takes possession of the property, whichever is sooner. A higher-tier contractor must remit payment to its subcontractors within seven days of receipt of payment for the subcontractor’s work, unless otherwise stated in the contract. Failure to pay promptly, in violation of the act, entitles the unpaid contractor to receive costs and interest, as well as reasonable attorney’s fees.

C. DBE Prompt Payment

In accordance with 49 CFR, Part 26, Section 26.29, MDOT holds retainage from the prime contractor and provides for both the prompt and regular incremental acceptances of portions of the prime contracts and the ultimate payment to the primes/subs based on those acceptances. Pursuant to federal law, MDOT holds retainage from prime contractors and makes incremental inspections and approvals of the prime contractor’s work at various stages of the project (MDOT would pay the prime contractor the portion of the retainage based on these approvals).  The prime contractor, in turn, is required to promptly pay all retainage owed to the subcontractor for satisfactory completion of the approved work.

MDOT must ensure that a clause is placed in every US DOT-assisted contract requiring prime contractors to pay subcontractors for satisfactory performance of their contracts no later than 30 days from receipt of each payment that MDOT makes to the prime contractor. All prime contractors must also comply with all applicable Maryland laws and regulations regarding prompt payment to subcontractors, to the extent that they are not inconsistent with federal law. This means that subcontractors may contact MDOT, at the address below, regarding lack of prompt payment.

For additional information about the DBE and MBE compliance procedures, please refer to the MDOT, DBE, and MBE Compliance Manuals.

DBE Compliance Manual:

http://www.mdot.maryland.gov/Office%20of%20Minority%20Business%20Enterprise/Resources_Information/
03.2015%20MD%20MBE%20Federal%20DBE%20Program%20Manual%206-2012%20revised%203-2015.pdf

MBE Compliance Manual:

http://www.mdot.maryland.gov/Office%20of%20Minority%20Business%20Enterprise/Resources_Information/
4.8.15%20MBE%20Manual%202014%20Amendments.pdf

For information on construction related matters, contact Michael W. Siri or Matthew G. Hjortsberg at 410-583-2400.  For information on DBE and MBE compliance matters and employment issues, contact J. Nicole Windsor at 410-583-2400.

 

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