Chapter 35. Building Construction Payments
TITLE 6
Commerce and Trade
SUBTITLE II
Other Laws Relating to Commerce and Trade
CHAPTER 35. BUILDING CONSTRUCTION PAYMENTS
§ 3501. Definitions.
As used in this chapter:
(1) "Billing period" means the payment cycle agreed to by the parties, or, in the absence of an agreement, the calendar month within which the work is performed.
(2) "Contractor" includes, but is not limited to, an architect, engineer, real estate broker or agent, subcontractor or other person, who enters into any contract with another person to furnish labor and/or materials in connection with the erection, construction, completion, alteration or repair of any building or for additions to a building, by such contractor, or for the sale to such other person of any lands and premises, whether owned by such contractor or another, upon which such contractor undertakes to erect, construct, complete, alter or repair any building or addition to a building.
(3) "Moneys or funds" includes, but is not limited to, the entire amount of all moneys or funds received by a contractor, as defined in this section, who, being the owner of the legal title to lands and premises, receives, in connection with a contract for the sale thereof and for the erection, construction, completion, alteration or repair of any building or addition thereon by such contractor, any moneys or funds by way of a loan or advance upon the security of such lands and premises for the purpose of such erection, construction, completion, alteration or repair, or who receives from the other contracting party or vendee any deposit or sum of money on account of the purchase or contract price, and no part of such moneys or funds shall be deemed or construed applicable to the payment of the cost or selling price of land, unless that part of the contract price or selling price applicable to cost or selling price of land, be specifically so stated in the contract.
(4) "Owner" means a person who has an interest in the lands or premises upon which a contractor has undertaken to erect, construct, complete, alter or repair any building or addition to a building.
(5) "Person" shall include a corporation, partnership, limited liability corporation or partnership, business trust, other association, estate trust, foundation or a natural person.
(6) "Subcontractor" means a person who enters into a contract to furnish labor and/or materials to a contractor.
38 Del. Laws, c. 169, § 1; Code 1935, § 3652; 44 Del. Laws, c. 163, § 1; 6 Del. C. 1953, § 3501; 70 Del. Laws, c. 420, § 3; 74 Del. Laws, c. 357, § 1.;
§ 3502. Payments to contractor impressed with trust.
All moneys or funds received by a contractor in connection with a contract for the erection, construction, completion, alteration or repair of any building or for additions to a building and all moneys or funds received by a contractor in connection with a contract for the sale of land and the erection, construction, completion, alteration or repair of any building or addition thereon, shall be trust funds in the hands of the contractor.
38 Del. Laws, c. 169, § 1; Code 1935, § 3652; 44 Del. Laws, c. 163, § 1; 6 Del. C. 1953, § 3502.;
§ 3503. Use or application of money received by contractor.
No contractor, or agent of a contractor, shall pay out, use or appropriate any moneys or funds described in § 3502 of this title until they have first been applied to the payment of the full amount of all moneys due and owing by the contractor to all persons (including surveyors and engineers) furnishing labor or material (including fuel) for the erection, construction, completion, alteration or repair of, or for additions to, such building, whether or not the labor or material entered into or became a component part of any such building or addition and whether or not the same were furnished on the credit of such building or addition or on the credit of such contractor.
38 Del. Laws, c. 169, § 1; Code 1935, § 3652; 44 Del. Laws, c. 163, § 1; 6 Del. C. 1953, § 3503.;
§ 3504. Contractor's failure to use or apply money in accordance with § 3503.
Failure of a contractor, or of an agent of a contractor, to pay or cause to be paid, in full or pro rata, the lawful claims of all persons, firms, association of persons or corporations (including surveyors and engineers), furnishing labor or material (including fuel), as required by § 3503 of this title, within 30 days after the receipt of any moneys or funds for the purposes of § 3502 of this title, shall be prima facie evidence of the payment, use or appropriation of such trust moneys or funds by the contractor in violation of the provisions of this chapter.
38 Del. Laws, c. 169, § 3; Code 1935, § 3654; 44 Del. Laws, c. 163, § 3; 6 Del. C. 1953, § 3504.;
§ 3505. Penalties.
Whoever, being a contractor, or any agent of a contractor, pays out, uses or appropriates, or consents to the paying out, use or appropriation of any moneys or funds received for any of the purposes specified in § 3502 of this title, prior to paying in full or pro rata to the extent of the moneys or funds so received, all the lawful claims of all persons (including surveyors and engineers) furnishing labor or materials (including fuel), as prescribed by § 3503 of this title, shall be fined not more than $1,000 or imprisoned not more than 3 years, or both.
38 Del. Laws, c. 169, § 2; Code 1935, § 3653; 44 Del. Laws, c. 163, § 2; 6 Del. C. 1953, § 3505.;
§ 3506. Interest penalties on late payments.
(a) Each construction contract awarded by an owner shall include:
(1) A payment clause which obligates the owner to pay the contractor for satisfactory performance under the contract within 30 days of the end of the billing period;
(2) An interest penalty clause which obligates the owner to pay the contractor an interest penalty on amounts due in the case of each payment not made in accordance with the payment clause included in the contract pursuant to subparagraph (1) of this subsection;
(3) The clause required by this subsection shall not be construed to impair the right of the owner to include in its contracts provisions which permit the owner to retain a specified percentage of each progress payment otherwise due to a contractor for satisfactory performance under the contract without incurring any obligation to incur an interest penalty, in accordance with the terms and conditions agreed to by the parties to the contract. In such a case, the owner must provide written notice to contractor as to why payment is being withheld within 7 days of the date required for payment to the contractor.
(b) Each construction contract awarded by a contractor shall include:
(1) A payment clause which obligates the contractor to pay the subcontractor and each supplier for satisfactory performance under the subcontract within 30 days out of such amounts as are paid to the contractor; and
(2) An interest penalty clause which obligates the contractor to pay the subcontractor and each supplier an interest penalty on amounts due in the case of each payment not made in accordance with the payment clause included in the contract pursuant to paragraph (1) of this subsection.
(c) The interest penalty shall apply to the period beginning on the day after the required date and ending on the date on which payment of that amount due is made and shall be computed at the legal rate in effect at the time the obligation to pay a late payment interest penalty accrues. Any amount of an interest penalty which remains unpaid at the end of any 30-day period shall be added to the principal amount of the debt and thereafter interest penalties shall accrue on such amount.
(d) The clauses required by subsection (b) of this section shall not be construed to impair the right of the contractor to include in its subcontracts provisions which permit the contractor to retain a specified percentage of each progress payment otherwise due to a subcontractor and each supplier for satisfactory performance under the subcontract without incurring any obligation to incur an interest penalty, in accordance with the terms and conditions agreed to by the parties to the contract. In such a case, the contractor must provide written notice to the subcontractor or supplier as to why payment is being withheld within 7 days of the date required for payment to the subcontractor or supplier.
(e) If it is determined by a court of competent jurisdiction that a payment withheld pursuant to subsection (a)(3) or (d) of this section was not withheld in good faith for reasonable cause, the court may award reasonable attorney's fees to the prevailing party. In any civil action brought pursuant to this section, if a court determines after a hearing for such purpose that the cause was initiated, or a defense was asserted, or a motion was filed or any proceeding therein was done frivolously or in bad faith, the court shall require the party who initiated such cause, asserted such defense, filed such motion or caused such proceeding to be had to pay the other party named in such action the amount of the costs attributable thereto and reasonable expenses incurred by such party, including reasonable attorney's fees.
(f) Once a contractor has made payment to the subcontractor or supplier according to the payment terms of the construction contract or the provisions of this section, future claims for payment against the contractor or any surety of the contractor by parties owed payment from the subcontractor or supplier shall be barred.
70 Del. Laws, c. 420, § 2; 71 Del. Laws, c. 134, §§ 1-5; 74 Del. Laws, c. 357, §§ 2-4.;
§ 3507. Payments due.
(a) The owner shall pay the contractor strictly in accordance with the terms of the contract.
(b) If the terms of the contract do not contain a term governing payment, the contractor shall be entitled to submit an invoice to the owner for payments at the end of the billing period for:
(1) Work already commenced but not fully completed and/or,
(2) Materials already supplied,
if the agreed upon work is completed at the end of such billing period.
(c) If the contract between the owner and a contractor, or between contractors, does not contain a provision governing when invoices may be submitted, a contractor shall be entitled to submit a final invoice for payment in full when the agreed-upon work is fully completed. The owner shall pay all undisputed amounts owed to the contractor within 30 days after the end of the billing period or 30 days after delivery of the invoice, whichever is later. This subsection shall not be construed to impair the right of an owner to include in a contract provisions that permit the owner to retain a specified percentage of each progress payment otherwise due to a contractor and each supplier for satisfactory performance under the contract.
(d) If subcontractor payment terms are not specified in the contract between the owner and a general or prime contractor, or in the contract between the general or prime contractor and a subcontractor, or in the contract between the subcontractors, a general contractor, prime contractor or subcontractor shall pay all undisputed amounts owed to its subcontractors, suppliers and/or materielmen within 15 days after receipt by the general contractor, prime contractor or subcontractor of each payment received for work performed or materials supplied by its subcontractors, suppliers and/or materielmen. This subsection shall not be construed to impair the right of an owner or contractor to include in a subcontract provisions that permit the owner or contractor to retain a specified percentage of each progress payment otherwise due to a subcontractor and each supplier for satisfactory performance under the subcontract.
(e) If a subcontractor performs in accordance with the provisions of its contract, the subcontractor shall be entitled to payment from the party with whom the subcontractor has contracted in accordance with the payment terms of its contract or this section, whichever applies; provided, however, that a provision in a contingent payment clause in a construction contract which:
(1) States that a contractor assumes the risk of nonpayment of the owner;
(2) Requires a contractor to waive any statutory or other right to commence litigation or arbitration until payment is made to the general or prime contractor;
(3) Makes subject to payment by the owner the obligation of a contractor and its surety under any payment or performance bond to make any payment to a claimant under such bond; or
(4) States that a contractor relies on the credit of the owner and not on the credit of the general or prime contractor or of a bonding company;
is contrary to the public policy of this State and shall be void and unenforceable.
(f) This section shall not apply to:
(1) Public works contracts awarded under Chapter 69 of Title 29;
(2) Contracts for the erection of 6 or fewer residential units which are under construction simultaneously, or for the alteration or repair of any single residential unit; or
(3) Contracts for the purchase of materials by a person performing work on that person's own real property.
73 Del. Laws, c. 344, § 1; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 357, §§ 5, 6.;
§ 3508. Procedure for dispute of claims.
(a) If an owner or contractor disputes any amounts stated in an invoice for payment, then:
(1) The party disputing the invoice must notify the other party in writing within 7 days of the receipt of the disputed invoice; and
(2) The party disputing the invoice must be specific as to those items within the invoice that are disputed.
(b) If notice of dispute is not given within the time required by this section, then the invoice is deemed to be accepted as submitted.
(c) If notice of dispute is not given within the time required by this section, such lack of notice does not constitute acceptance of the work performed.
(d) This section shall not apply:
(1) To public works contracts awarded under Chapter 69 of Title 29;
(2) To contracts for the erection of 6 or fewer residential units which are under construction simultaneously, or for the alteration or repair of any single residential unit;
(3) To contracts for the purchase of materials by a person performing work on that person's own real property; or
(4) Where the terms of a contract specify a different procedure for disputing claims for payment.
(e) This section shall not apply where the terms of a contract between a general or prime contractor and a subcontractor specify a difference procedure for disputing claims for payment.
73 Del. Laws, c. 344, § 1; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 357, §§ 7, 8.;
§ 3509. Attorneys' fees and litigation costs.
(a) Award of attorneys' fees and arbitration costs. -- If arbitration or litigation is commenced to recover payment due under § 3507 of this title and it is determined that the owner, contractor or subcontractor has failed to comply with the payment terms of § 3507 of this title, the arbitrator or court shall award damages due equal to the amount that is determined by the arbitrator or court to have been wrongfully withheld. An amount shall not be deemed to have been wrongfully withheld to the extent that it bears a reasonable relationship to the value of any disputed amount or claim held in good faith by the owner, contractor or subcontractor against whom the contractor or subcontractor is seeking to recover payment.
(b) Absent any agreements to the contrary between the parties, the arbitrator in any arbitration proceeding arising under this chapter shall award to the substantially prevailing party its reasonable attorneys' fees, arbitration costs and expenses for expert witnesses.
(c) This section shall not apply to:
(1) Public works contracts awarded under Chapter 69 of Title 29;
(2) Contracts for the erection of 6 or fewer residential units which are under construction simultaneously, or for the alteration or repair of any single residential unit; or
(3) Contracts for the purchase of materials by a person performing work on that person's own real property.
(d) This section shall not apply where the terms of a contract between a general or prime contractor and subcontractor specifies different terms regarding the award of attorney fees and litigation costs in an arbitration or judicial proceeding.
73 Del. Laws, c. 344, § 1; 70 Del. Laws, c. 186, § 1; 74 Del. Laws, c. 357, §§ 9, 10.;