Nebraska Construction Prompt Pay Act
Are you a contractor having issues with obtaining payment for work performed or materials supplied for a project? If so, don’t forget about the Nebraska Construction Prompt Payment Act. The Nebraska Construction Prompt Payment Act, applies to nearly all private and public construction contracts and subcontracts with the exception of residential construction that consists of less than four residential units.
The Act mandates that when a contractor has performed work in accordance with the provisions of a contract for an owner, the owner must pay the contractor within thirty (30) days after receipt by the owner of a payment request made pursuant to the contract. The timeline for payment of a subcontractor may even be shorter. In this regard, when a subcontractor has performed work in accordance with the subcontract and all conditions to payment have been satisfied, the contractor must pay the subcontractor within ten (10) days after receipt by the contractor of each periodic or final payment from the owner.
Impacts on Retainage:
The Act impacts retainage by limiting the amount of retainage allowed and adjusting the timeline under which retainage must be released on a project. Specifically, an owner, contractor, or subcontractor may only withhold retainage in an amount that does not exceed that which is specified in the contract and this amount may never exceed 10 percent. The Act also governs the timeline under which retainage must be released on a project. In this regard, the owner must release and pay all retainage for work completed in accordance with the contract within 45 days after the project, or a designated portion thereof, is substantially complete. The Act sets a limitation on the amount of retainage that may be withheld. Under the Act, so long as the contractor or subcontractor provides satisfactory and reasonable assurances of continued performance and financial responsibility to complete the work and if the work is at least 50 percent complete, no more than 5 percent of additional progress payment can be withheld as retainage.
Payment can only be withheld: (1) For retainage; (2) if allowed in the contract when (a) reasonable evidence shows that the contractual completion date will not be met due to unsatisfactory job progress; or (b) third party claims are filed or there is reasonable evidence that such a claim will be filed; or (c) contractor fails to make timely payments; or, finally, (3) after substantial completion, in an amount not to exceed 125% of the estimated cost to complete the remaining work.
Failure to Comply- Interest and Attorney’s Fees:
Failure to comply with the Act results in an accrual of interest on the unpaid balance beginning on the day following the payment due date at 1% per month. Interest is due only after the (sub)contractor first provides notice to the person to be charged of the prompt pay provisions. The Act also has a section which provides for a private right of action to any person or entity damaged by a violation of the Act. In addition to damages, a court has discretion to award a plaintiff (but not the defendant) reasonable attorney’s fees and costs when they successfully prosecute a violation of the Act.
Owners, contractors, and subcontractors must be familiar with the Act because it impacts the aforementioned issues of payment timelines, withholding of payment, and retainage. Furthermore, to the extent that payment is impermissibly withheld in violation of the Act, the aggrieved party has a right to recover its attorney’s fees for any such violation. Consequently, the ramifications of a violation of the Act could be significant. If you have questions about the Nebraska Construction Prompt Payment Act, please do not hesitate to contact one of the members of Koley Jessen’s Construction Industry Practice Area.