This month, Gov. Tim Walz signed legislation known as the Minnesota Payment Transparency Act after it passed unanimously in both houses of the Minnesota legislature.
The law is intended to help subcontractors on public construction projects ensure that they are paid as soon as possible after the general contractor is paid.
What does the law require?
Under the new law, public contracting agencies are required to share details about their payments to general contractors with subcontractors who request them. This must be done within seven calendar days of the request. Specifically, they must provide the following information:
- The payment amount
- The date of the payment or approval for it
- A copy of the payment application from the general contractor (except for highway construction projects, where the requirement is somewhat different)
Generally, construction contracts state that general contractors have to pay their subcontractors by a specified time after they’ve been paid themselves, according to the Prompt Payment Act.
Helping subcontractors manage their cash flow
A Minnesota Subcontractors Association lobbyist says the new law is important “because subcontractors routinely wait months — sometimes more than a year — to be paid in full, after they’ve bought the materials, paid their employees, and completed the work. Knowing when the owner has allocated funds will help subcontractors plan their cash flow, invoke the Prompt Payment Act to recover late payments, and improve communication on public work.”
The representative who sponsored the legislation in the Minnesota House noted that “this bill helps the painter, the electrician, the concrete subcontractor, small Minnesota businesses that have already done the work and are carrying the payroll while they wait. They deserve to know when they’ll be paid.”
One drywall business owner testified during hearings on the legislation that her company did some $30,000 in work on a fire station and still hadn’t been paid nearly a year later, noting that “something must give if we want small businesses to succeed.”
It’s crucial for subcontractors and general contractors to understand the Minnesota Payment Transparency Act and for subcontractors to assert their rights under the law. They may want to include some language around it in their contracts for more clarity. As always, having experienced legal guidance in creating, reviewing, negotiating and enforcing contracts can help the relationship proceed more smoothly.