Bill
HB 383
Strengthens subcontractor payments by voiding pay-if-paid clauses and requiring faster, defined payment timelines with interest for late payments.
Status: First Edition filed Mar 12, 2025 (applies to contracts entered on or after the effective date once the act becomes law)
Purpose
- Strengthen statutory protections for subcontractors on construction projects by (1) making pay-if-paid / pay-when-paid clauses unenforceable, and (2) imposing prompt-payment timing and interest rules that require faster flow‑through of funds down the contract chain.
Key provisions and changes
- Purpose statement (G.S. Chapter 22C): declares its objective to increase protections for payments to subcontractors and declares contract clauses that shift payment risk (e.g., "pay-if-paid" or "pay-when-paid") against public policy and unenforceable.
- Definitions: clarifies terms used in the Chapter (contractor, subcontractor, owner, improve, improvement, real property).
- Payment entitlement (§ 22C-2): performance by a subcontractor in accordance with its subcontract entitles the subcontractor to payment from the party with whom it contracted. Payment by the owner to the contractor is NOT a condition precedent to payment to a subcontractor — similarly payment to one subcontractor is not a condition precedent for payment to another; contractual provisions to the contrary are unenforceable.
- Timing of payments (§ 22C-3):
- If a contractor (or subcontractor) receives a periodic or final payment from its payor, it must pay its subcontractor within 7 days of receipt the full amount received that corresponds to the subcontractor’s completed work/materials.
- Alternatively (when subsection (a) does not apply), the paying party must remit the billed amount to its subcontractor within 30 days of receiving billing from the payee to the payor.
- Any contractual term postponing payment more than 30 days after performance and billing is void.
- Conditions for withholding (§ 22C-4): contractor may withhold certification/payment to owner for limited, enumerated reasons (unsatisfactory progress, defective work not remedied, disputed work, existing/likely third‑party claims, subcontractor’s failure to pay labor/equipment/materials, damage, reasonable evidence subcontract cannot be completed, or reasonable retainage not to exceed owner’s initial retainage percentage).
- Interest on late payments (§ 22C-5): if payment is delayed beyond the maximum period (7 days after receipt by contractor or, as applicable, 30 days after billing), interest accrues beginning on the 8th day at 1% per month (or fraction thereof) on the unpaid balance.
- Applicability/exemptions (§ 22C-6): does NOT apply to residential contractors as defined in G.S. 87‑10(1a), or to residential improvements exempt from Chapter 83A, or to residential projects of 12 or fewer units.
- Effective date / scope: takes effect when enacted and applies to contracts entered into on or after that date.
Who is affected
- Beneficiaries: subcontractors (trade contractors, material suppliers) who gain stronger, faster payment rights.
- Obligated parties: prime contractors and higher-tier subcontractors must alter cash‑flow practices, pass funds promptly, and document reasons for any lawful withholding.
- Owners: may see changes in contractor cash‑management and retainage practices; financing/credit arrangements could be affected.
- Construction lenders, project accountants and legal counsel: may need to adjust contract forms and disbursement procedures to comply.
- Residential small projects (as defined) are largely exempt.
Potential impacts and considerations
- Positive: improves subcontractor liquidity and reduces risk of nonpayment cascading down the chain; discourages enforcement of pay-if-paid clauses.
- Compliance burdens: contractors may experience increased working‑capital needs and administrative changes to ensure 7/30‑day remittances and to document permissible withholding grounds.
- Disputes: the statute tightens timing but preserves limited, enumerated withholding rights; litigated disputes may arise over what constitutes "reasonable evidence" of claims, defective work, or completion ability.
- Financial: interest at 1%/month provides a statutory remedy but does not specify additional civil penalties; overall fiscal impact on State not specified in the bill text.
Procedural/timeline notes
- The act is effective upon becoming law and applies to new contracts executed on or after that date.
- Parties should review existing and future subcontracts, payment terms, and cash‑flow plans to ensure compliance once enacted.
Compiled from official sources — confirm details with the bill’s official record.
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