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A firm can qualify for up to 50% of the amount of the contract(s) Overall there was little agreement about how many days
not to exceed $500,000. constitute prompt payment among the responding agencies.
Figure 8 shows the distribution of current prompt payment
For more information, contact OEODC, Support Services at:
provisions. Seven respondents did not provide information to
http://www.dot.state.ny.us/oeodc/support.html#Loan.
this question and stated that their regulations were not cur-
rently in compliance with the requirements.
PROMPT PAYMENT Sanctions and penalties for prime contractors failing to
comply with prompt pay requirements identified by the STAs
Prompt payment and retainage were two major changes that included:
affected subcontracting practices. In the past, prime contrac-
tors could withhold payment to subcontractors long after · Withholding future prime contractor payments (9),
work was substantially completed. All firms working as sub- · Interest of 1.5% to 2% per month on the amount owed
contractors were affected by the reduced cash flow result- or fixed-fee charges (liquidated damages) of $50 per day
ing from slow payment. Section 26.29 of the regulation or some other amount (7),
describes the requirements for prompt payment as follows: · Suspension of bidding privileges (5), and
· In repeat or chronic cases the contractor may be sus-
(a) You must establish, as part of your DBE program, a contract
pended from bidding or revocation of prequalification (3).
clause to require prime contractors to pay subcontractors for
satisfactory performance of their contracts no later than a
specific number of days from receipt of each payment you The primary approach to monitoring subcontractors' pay-
make to the prime contractor. This clause must also require ments was normal monthly progress payments either in the
the prompt return of retainage payments from the prime con-
tractor to the subcontractor within a specific number of days
form of reports filed or software printouts. The primary
after the subcontractor's work is satisfactorily completed. enforcement mechanism is to conduct an investigation when
(1) This clause may provide for appropriate penalties for fail- a complaint is filed.
ure to comply, the terms and conditions of which you set.
(2) This clause may also provide that any delay or post-
ponement of payment among the parties may take place
only for good cause, with your prior written approval.
(b) You may also establish, as part of your DBE program, any RELEASE OF RETAINAGE
of the following additional mechanisms to ensure prompt
payment: Retainage is one mechanism to ensure that contractors and
(1) A contract clause that requires prime contractors to subcontractors complete their work. Retainage is money held
include in their subcontracts language providing that
prime contractors and subcontractors will use appropri- back from payments made to the prime contractor or sub-
ate alternative dispute resolution mechanisms to resolve contractor. Traditionally, prime contractors withheld payment
payment disputes. You may specify the nature of such of retainage on subcontracts until they received final pay-
mechanisms. ment. Retainage options for STAs were described as follow
(2) A contract clause providing that the prime contractor
will not be reimbursed for work performed by subcon- (www.azagc.org/sept03):
tractors unless and until the prime contractor ensures
that the subcontractors are promptly paid for the work 1. Eliminate retainage entirely, prohibiting prime contrac-
they have performed.
(3) Other mechanisms, consistent with this part and applica-
tors from withholding retainage from subcontractors.
ble state and local law, to ensure that DBEs and other 2. Stop prime contractor withholding, but allow prime
contractors are fully and promptly paid. contractors to withhold retainage on subcontractors.
12 11
10
Number of Agencies
8 7
6 5
4
2
2 1 1
0
7 days 10 days 14 days 15 days 20 days 30 days
Specified Prompt Payment Time
FIGURE 8 Prompt payment time specified.
