• Impact of Amendments to Minnesota's Prompt Payment and Retainage Laws
  • November 16, 2016 | Author: Elizabeth S. Poeschl
  • Law Firm: Meagher & Geer, P.L.L.P. - Minneapolis Office
  • On August 1, 2016, Minnesota's amendments to the prompt payment statute became effective. The amendments made two primary changes to the statute, which will impact the way all construction contracts are written.

    First, the revised statute specifically authorizes contractors and subcontractors of any tier to stop work if they are not paid within ten (10) days after an undisputed payment is due.

    And, second, the revised statute limits the amount of retainage to 5%. These revisions are applicable to all construction projects in Minnesota, and to all building and construction contracts executed after August 1, 2016.

    First, Minnesota's "prompt payment" statute requires general contractors to pay subcontractors within ten (10) days after the contractor is paid for the subcontractor's work. These laws also apply to payments to subcontractors at all tiers. The prompt payment statute, Minn. Stat. § 337.10, subd.3, was changed to provide the unpaid contractor with an additional remedy. Now, the unpaid contractor is entitled to receive interest at 1.5% per month, and with the amendment, the unpaid contractor may also suspend its work until the undisputed payment is received.

    Second, the retainage portion of Minnesota's prompt payment statute was also changed. Retainage allows the owner to withhold a specific portion of earned payments, which will be paid at the end of the project assuming the work is fully completed in a non-defective manner. Retainage provisions are used in construction contracts at all tiers. Prior to the amendment, the statute limited public owners to a retainage of 5%, but allowed private owners, contractors, and subcontractors to withhold more than 5%, if agreed to by contract. With the amendment, retainage provisions in all contracts must not exceed 5%.

    This amendment does not require a contract to include a retainage provision. It simply caps the retainage amount at 5%, which means that any provisions that require a retainer of more than 5% will be void as illegal.

    Contracts and subcontracts entered after August 1, 2016, must be drafted to comply with both of these amendments. Any portion of the contract that is non-compliant will be considered illegal and unenforceable.