No contractor wants to face a payment dispute. Contractors need the money to make payroll and to pay their suppliers. An owner that holds off on payment can have a disastrous effect on their contractors.
If you are in the midst of a payment dispute, know that you are protected by statute. Also know that most payment disputes do not end up in court, a costly process that tends to slow everything down.
An experienced attorney, who may be more affordable than you may think, can often get you payment without beginning the litigation process. If you are in the midst of a payment dispute, read about your rights below, but also contact an attorney that can help you efficiently enforce your rights.
Statutory Provisions that Protect Contractors
During payment disputes, contractors and subcontractors have two options in how to proceed. First, they can enforce their rights under the Illinois Mechanic’s Lien Act (link). This is a contractor’s best method of protecting their rights when working on single-family residences or smaller residential units.
Contractors or subcontractors working on large projects also have another method to enforce their right to payment, the Illinois Contractor Prompt Payment Act. The Act applies to all private construction contracts entered into after August 31, 2007, unless those contracts relate to a single-family residence or multiple family residences with 12 or fewer units in a building.
The Act affects three important aspects of payment of construction contractors. First, it creates a procedure under which contractors should be paid promptly. Second, it creates a procedure under which subcontractors should be paid promptly. Finally, it broadens the types on documents that can create a demand for payment.
After a contractor submits a payment application, the owner or their agent has 25 days to approve or reject the application, in whole or in part. If the owner fails to object during this period, the application is deemed to be approved. If the owner decides to reject the application in its entirety, they must notify the contractor in writing within that 25-day period. They must include a reason for the rejection. If the owner only rejects part of the application, they must give a written statement for that portion and pay the remaining money.
After the application has been approved, the owner must make payment to the contractor within 15 days. If they fail to do so, they become liable for the payment, plus interest at 10% per annum.
If the owner does not make the payment, the contractor may lawfully suspend its performance until it receives payment if they give the owner 7 days notice that they intend to suspend performance.
The Rights of Subcontractors
The Act also gives subcontractors a right to payment. A contractor has 15 days from the day of payment to pay a subcontractor who has performed under its contract. If this does not occur, subcontractors can also suspend their performance. Late payments will also receive interest at a rate of 10% per annum. This applies down the line to sub-subcontractors, sub-sub-subcontractors and the like.
Finally, the Act also broadens what may qualify as a payment application. Traditionally, the payment process was formalized with a standardized payment application form. These are no longer necessary.
Instead, contractors can use invoices, bills, or any other request for payment to trigger the Act’s protections. If you are a contractor who has hired subs, be weary of any invoice you receive. It may trigger your duty to pay if you do not give written notice within 25 days.
Attorney Rob Cohen prides himself in efficiently representing contractors and subcontractors that face payment disputes. He understands that, in most cases, neither party wants to go to court. Rob uses his 30+ years of legal experience to get his clients the results they want. If you face a payment dispute with the owner you are working for in Northern Illinois, do not hesitate to contact him for a free consultation.