Tag Archives: prompt payment act

BONA FIDE DISPUTE DEFEATS VIOLATION OF PROMPT PAYMENT ACT

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Most, if not all, jurisdictions, including the federal government, have what is known as a “Prompt Payment Act.”  The objective is to ensure prompt payment. If prompt payment is not made, the Prompt Payment Act provides for interest penalties, as well as potentially other costs such as attorney’s fees.

But the thing is, it’s not as simple as untimely payment to support the recourse and interest penalties the applicable Prompt Payment Act affords. And the teeth associated with the applicable Prompt Payment Act are not as sharp as perhaps the party claiming untimely payment prefers.

A recent case out of the federal arena where the contractor claimed Prompt Payment Act recourse due to untimely progress payments from the government explains that the teeth of the Act are fully negated by a “bona fide” dispute:

[The contractor] bears the burden to establish that the progress payments were erroneously withheld. PPA interest will be paid if the Government receives a proper payment request and “there is no disagreement over quantity, quality, or Contractor compliance with any contract term or condition, or requested progress payment amount.”

The prompt payment regulations at…do not require the Government to pay interest penalties if payment delays are due to disagreement between the Government and the Contractor over the payment amount or other issues involving contract compliance, or on amounts temporarily withheld or retained in accordance with the terms of the contract.

However, to avoid PPA interest:

“[T]here must be, at the time payment of an invoice is delayed, a ‘present basis for delaying payment which is related to an objective discernible dispute.”’ All that is required to raise a bona fide dispute concerning contract compliance is that the government’s questions be raised in good faith. That a contractor may ultimately prevail on the merits does not defeat an otherwise proper payment withholding if there is such a good faith dispute.

F.O.G., LLC v. Department of the Interior, CBCA 8203, 2026 WL 1191881 (CBCA 2026) (internal citations omitted).

Take a look at the underlined language and keep this in mind.

A bona fide dispute raised in good faith will defeat the recourse in the Prompt Payment Act, which is what occurred in this case. (Naturally the dispute needs to be in good faith for there to be a bona fide dispute.) Moreover, just because the party claiming untimely payment prevails on the merits does not mean the dispute was not bona fide, meaning prevailing on the merits does not support a violation the Prompt Payment Act.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

HELPFUL PROVISIONS IN FLORIDA’S LOCAL GOVERNMENT PROMPT PAYMENT ACT

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Florida’s Local Government Prompt Payment Act (Florida Statute s. 218.735) contains helpful provisions to contractors and subcontractors working on local government projects (or projects that are neither owned by a state agency nor private entity that would be governed under different prompt payment acts).  These provisions pertain to the generation of the punchlist and the release of retainage.

 

 

 

 

 

A. Punchlist

The contract between the general contractor and local governmental entity needs to provide for the generation of a single punchlist.  The contract needs to specify the process required to generate the punchlist including the responsibilities of both the local governmental entity and contractor.  For projects with estimated construction costs less than $10 Million, the punchlist needs to be generated within 30 days after substantial completion.  For projects with estimated construction costs of $10 Million or more, the punchlist needs to be generated within 30 days after substantial completion; although, this may be extended by contract to up to 60 days after substantial completion.

 

If the punchlist is not provided to the contractor by the required date (through no fault of the contractor), the contract time for completion needs to be extended by the number of days the punchlist is delayed.  Moreover, the contractor can submit its payment application for the retainage balance and payment of any undisputed amount must be paid.

 

If a dispute exists as to any item on the punchlist, the local governmental entity may only withhold up to 150% of the cost to complete such items.  Once the contractor completes the items on the list, it can submit its payment request for retainage.

 

Importantly…and I repeat, importantly…warranty items or items not identified on the (single) punchlist may not impact the local governmental entity’s final payment of retainage!   Also, if the local governmental entity is utilizing an Owner Controlled Insurance Program (known as “OCIP”), the local governmental entity cannot withhold retainage or delay final payment pending a final audit to determine the insurance premium.

 

B. Retainage

The local governmental entity is entitled to withhold 10% retainage on progress payments until the project is 50% complete. After the project is 50% complete, the local governmental entity must reduce the retainage on future progress payments to 5%.  The contractor may also submit a payment application to the local governmental entity for ½ of the retainage (5%) that the governmental entity was withholding until 50% completion (which must be paid unless there is a good faith dispute for withholding some or all of this retainage).

 

As it relates to subcontractors, the contractor can still withhold retainage greater than 5%; however, the “contractor shall notify the subcontractor, in writing, of its determination to withhold more than 5 percent of the progress payment and the reasons for making that determination, and the contractor may not request the reqlease of such retained funds from the local governmental entity.”  Fla.Stat. s. 218.735(8)(c).

 

(This retainage reduction does not apply to municipalities with a population of 25,000 or fewer or counties having a population of 100,000 or fewer, meaning these local governmental entities can withhold 10% retainage until final completion.)

Florida’s Local Government Prompt Payment Act gives the general contractor the argument that only a single punchlist needs to be generated versus a never-ending punch list that the local governmental entity continues to add to so that there is no end in sight to the punchlist completion.  It further allows the contractor to submit its payment application for its final contract balance of retainage if the punchlist is not timely generated through no fault of the contractor.  Additionally, Florida’s Local Government Prompt Payment Act not only authorizes a reduction in retainage to 5% at 50% completion, but allows the contractor to bill for half of the withheld retainage that the local government was withholding through 50% completion.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.