In 2023, the Private Contractor and Subcontractor Prompt Payment Act of 20131 (the Act) was amended to include additional protections for subcontractors on private projects by limiting a contractor’s setoff rights related to claims or damages on other projects. This limitation also applies to first-tier subcontractors. Below, attorneys in PilieroMazza’s Construction Group summarize what changes to the Act mean for construction contractors and subcontractors working on private construction projects in DC.
The Act—which governs private projects—requires contractors and first-tier subcontractors to pay undisputed amounts due their subcontractors within seven days after receipt of payment for that work. An undisputed amount is defined as “an amount owed on a contract or a subcontract for which there is no good-faith dispute, including any retainage withheld.” The Act also has additional protections for subcontractors, including:
- prohibiting contractual “pay-if-paid” provisions from waiving or abrogating a subcontractor’s mechanic’s lien or payment bond rights and
- voiding, as against public policy, contractual provisions pursuant to which a subcontractor purports to indemnify or hold harmless the contractor or owner against liability for damage arising out of bodily injury to persons or damage to property caused by or resulting solely from the negligence of the contractor or the owner or the contractor’s or owner’s agents or employees.
The Act was amended to add an additional protection addressing a common term in many contracts: “Any contract or subcontract provision in a contract executed after March 31, 2023, that allows a contracting party to withhold funds due under one contract or subcontract for alleged claims or damages due on another contract or subcontract is void as against public policy.”
If a contractor or subcontractor withholds amounts due under a claim of setoff related to another project, it could face potential penalties. Under the Act, if a contractor or subcontractor fails to make timely payment of undisputed amounts due, it is obligated to pay interest of 1.5% per month. Moreover, contractors and subcontractors can assert claims for attorneys’ fees to recover the outstanding amounts, which fees are mandatory if the contractor or subcontractor prevails.
Construction contracting and a contractor’s available remedies can be difficult to navigate and sometimes downright confusing.
1D.C. Code Ann. § 27A-101 et seq. (formerly cited as D.C. Code Ann. § 27-131 et seq.)