Prime contractors are required to pay their subcontractors within seven days of receiving payment from ADOT. Similarly, prime contractors are required to make final payment to a subcontractor of all monies owed within seven days of receiving payment from ADOT. Prime contractors are required to enter payments made to all subcontractors in the ADOT DBE System each month in order to track prompt payment and so that ADOT can track and report awards, commitments and payments made to DBE and non-DBE subcontractors to federal funding sources.
If partial and final payment (including any retention) is not made or not reported by the prime contractor within 7 days from the date ADOT pays the prime contractor, ADOT will retain two times the dollar amount not paid to each subcontractor. If full payment is made within 30 days of ADOT’s payment to the contractor, the amount withheld by ADOT will be released. If full payment is made after 30 days of ADOT’s payment to the contractor, ADOT will release 75 percent of the funds withheld. ADOT will retain 25 percent of the monies withheld as liquidated damages.
If the contractor fails to make prompt payment for three consecutive months, or any four months over the course of one project, or if the contractor fails to make prompt payment on two or more projects within 24 months, ADOT may, in addition, invoke the following remedies: Withhold monthly progress payments until the issue is resolved and full payment has been made to all subcontractors, terminate the contract for default, and/or disqualify the contractor from future bidding, temporarily or permanently, depending on the number and severity of violations.
ADOT typically does not hold retention from prime contractors; as a result, the prime cannot in turn hold retention with their subcontractors. However, if the prime's contract with ADOT allows for retainage, then prime contractors may hold retention against a subcontractor similarly to how ADOT is holding retention. If the prime contract provides for retention, the prime contractor and each subcontractor of any tier must not retain a higher percentage than ADOT may retain under the prime contract.
Furthermore, if a subcontractor is performing work on multiple contracts for the same contractor or subcontractor of any tier, the contractor or subcontractor of any tier shall not withhold or reduce payment from its subcontractors on the contract because of disputes or claims on another contract.
For more information on prompt payment requirements, watch this video on the FHWA website. For more information on payment laws, see the chapter 15 of the Department of Labor’s Field Operations Handbook in the Contractor’s Information section of the ADOT website.