Summary — HB 451: State and Private Construction Contracts — Prompt Payment Requirements (Maryland)
Status / Key dates
- Introduced: November 12, 2024 (Delegate Lehman et al.). First reader Jan. 26, 2025; public hearing Jan. 29, 2025.
- Final legislative actions in the file indicate passage and gubernatorial signature (May 2025) with an effective date of September 1, 2025. (See official session records for final enactment details.)
Purpose
- To require prompt-payment provisions in construction contracts so subcontractors and contractors receive timely payment for completed work on both State and private construction projects, and to create specific notice and interest remedies when payments are withheld or late.
Scope / Definitions
- Applies to construction contracts as defined in Maryland’s Business Regulation Article (contracts to “do construction business”).
- Key parties: owners (private property owners), contractors (licensed construction contractors), and subcontractors (persons performing part of a construction contract).
Key provisions
- Owner → Contractor (private construction contracts):
- Private owner/contractor contracts must include a clause requiring the owner to pay the contractor within 60 days of the owner’s receipt of an invoice after satisfactory completion of the invoiced work.
- If the owner withholds all or part of an invoiced amount, the owner must notify the contractor in writing, with reasonable specificity, within 60 days of receiving the invoice explaining the withholding.
- Interest on unpaid amounts accrues at 9% per year, beginning on the 60th day after the owner receives the invoice.
- The provision does not require payment of amounts properly withheld due to contractor noncompliance; retainage provisions remain allowed.
- Contractor → Subcontractor (State and private construction contracts):
- Contracts between contractors and subcontractors must include a clause requiring the contractor to pay the subcontractor either:
- within 60 days after receipt of an invoice following satisfactory completion of the invoiced work; or
- within 7 days after the contractor receives payment from the owner for work performed by the subcontractor (whichever applies).
- If the contractor withholds all or part of an invoice, the contractor must notify the subcontractor in writing with reasonable specificity within 60 days after receiving the invoice explaining the withholding.
- Interest on unpaid amounts accrues at 9% per year, beginning on the 60th day after the contractor receives the invoice.
- Payment by an owner to a contractor may not be made a required condition for payment to a subcontractor, except where the owner is insolvent or in bankruptcy under Title 11 U.S.C.
- Retainage provisions are permitted and unaffected.
Enforcement and remedies
- Interest (9% annually) on late payments and written-notice requirements create statutory remedies; existing contract and legal remedies remain available (suits to recover unpaid amounts, interest, etc.).
- The fiscal note indicates the State itself will not directly enforce private contracts; any incremental litigation is expected to be minimal and manageable by the Judiciary with existing resources.
Potential impacts
- Positive cash‑flow effect for subcontractors and small contractors who may receive faster payment and statutory interest on late payments.
- Administrative impacts for owners and contractors: new contract language, compliance tracking, and timely written withholding notices.
- Possible modest increase in contract disputes or collection actions, although the fiscal note anticipates minimal additional litigation.
Notes
- The bill preserves commonly used retainage mechanisms and does not require payment of legitimately withheld amounts (e.g., for noncompliance).
- Consult the enacted statutory citations in the Business Regulation Article and State Finance & Procurement Article for final codified language and effective date.
