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On June 30, the Supreme Court of Tennessee issued an opinion interpreting the retainage provisions in Tennessee’s Prompt Pay Act (the Act). The opinion has significant implications for construction projects across Tennessee. Under the Act, a party withholding retainage from payments made to a contractor for construction work is required to deposit the withheld retainage into a separate, interest-bearing, escrow account with a third-party. Failing to follow this requirement is a Class A misdemeanor, subject to a $3,000 fine and, at the time the project in question began, a separate $300 civil “penalty,” for each day retainage is not properly held.
Tennessee Supreme Court Holds Contractor Potentially Liable For $300-Per-Day Penalty Wednesday, June 30, 2021
The Tennessee Supreme Court on Wednesday held that a general contractor may be required to pay a $300-per-day penalty under Tennessee law for its failure to pay a subcontractor for work completed on a Nashville construction project. Applying Tennessee’s Prompt Pay Act, the Court reversed the trial court’s decision that the subcontractor’s claim was filed too late; it held the general contractor could be liable for the penalty for the year before the subcontractor filed its lawsuit.
In 2013, general contractor Holladay Construction Group, LLC hired subcontractor Snake Steel, Inc.
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Yesterday, the Ohio House of Representatives passed a bill (H.B. No. 68) that would amend Ohio’s Prompt Pay Act (ORC Section 4113.61) to provide general contractors with payment protection akin to that currently enjoyed by subcontractors under the Act.
House Bill 68 is similar to House Bill 380 (which was proposed in October 2019 but died in committee), but with two important differences.
First, HB 68 shortens the proposed payment period from 35 days (as proposed by the House in 2019) to 30 days.
Second, HB 68 establishes two different triggers for the 30-day payment term, depending on whether the project requires plan approval by a local government entity.
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Last November, Arizona’s Court of Appeals issued a memorandum decision analyzing Arizona’s Prompt Pay Act. Though the decision was not published and is not binding authority, it does guide the construction industry and practitioners as to how this court analyzed Prompt Pay Act enforcement.
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was limited to a payment dispute between the general contractor Shea Connelly, and its subcontractor, Revive. The project owners effectively had no role in the dispute.
Critically for Shea Connelly’s arguments, Revive was hired to provide framing work on two separate Arizona projects, one in Glendale, and one in Fountain Hills called Park Place. The Glendale subcontract included a cross-default term providing that if Revive defaulted on any subcontract with Shea Connelly, it would be deemed to have defaulted on all of its subcontracts with Shea Connelly.