South Carolina’s Prompt Payment Act
By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.
We continue to explore South Carolina laws enacted to help contractors, subs, and suppliers get paid for their work. Today, I present South Carolina’s take on the so-called “prompt payment” laws. South Carolina’s legislature did not bestow the name “Prompt Payment Act” on its law, but I’m going to call it what it is.
The Prompt Payment Act is premised on the idea that a contractor or sub who who improves real property in accordance with the provisions of his contract should be paid for that work in a timely manner. Notably, the Act does not apply to most residential construction projects. Specifically excluded are: (1) residential homebuilders; (2) improvements for real property intended for residential purposes which consist of 16 or fewer residential units; or (3) “private persons or entities owning improvements to real property when the specific improvements are not financed by a nonowner.” (If you read that last one enough times, it actually starts to makes sense.)
Assuming the contractor or sub performs his contractual obligations, the Act requires the owner to pay the contractor by mailing or delivering the undisputed amount of the contractor’s pay request within 21 days of receipt by the owner of the contractor’s pay request. The Act requires the contractor to pay his subcontractors and suppliers within seven days of receipt by the contractor of payment from the owner. This seven day payment requirement applies to subcontractors and suppliers of any tier. Thus, the second-tier sub must pay his third-tier sub within seven days of receiving payment from the first-tier sub.
Payment may be withheld for portions of the work due to unsatisfactory job progress, defects, disputed work, third-party claims, payment issues, and the other usual suspects usually found in the vicinity of a contract dispute. Also, the Act does not require an owner to make payments to the contractor any more frequently than as set forth in the contract documents.
If the owner, contractor, or subcontractor fails to comply with the applicable time requirements, the Act entitles the claimant to receive interest beginning on the due date at the rate of one percent a month, or a pro-rata fraction thereof on the unpaid balance as may be due. However, no interest is due unless the person required to make payment has been properly notified of the Act “at the time the request for payment is made.”
On private projects, the parties may agree to rates of interest and payment periods that differ from the rates and payment periods in the Act “provided the requirements of Section 29-6-30 and 29-6-50 are specifically waived, by section number, in conspicuous bold-faced or underlined type.” In the case of a “wilful breach,” the interest and time provisions of the Act will apply.
As with most things legal, there are trap doors, loopholes, and strict procedural rules found in the Act. If you are thinking about invoking your rights under the Act, you would be wise to work with a South Carolina licensed attorney until you are comfortable with the process.
Photo Courtesy of Charleston Daily Photo