§ 143-134.1. Interest on final payments due to prime contractors; payments to subcontractors.
§ 143‑134.1. Intereston final payments due to prime contractors; payments to subcontractors.
(a) On all publicconstruction contracts which are let by a board or governing body of the Stategovernment or any political subdivision thereof, except contracts let by theDepartment of Transportation pursuant to G.S. 136‑28.1, the balance dueprime contractors shall be paid in full within 45 days after respective primecontracts of the project have been accepted by the owner, certified by thearchitect, engineer or designer to be completed in accordance with terms of theplans and specifications, or occupied by the owner and used for the purpose forwhich the project was constructed, whichever occurs first. However, when thearchitect or consulting engineer in charge of the project determines that delayin completion of the project in accordance with terms of the plans andspecifications is the fault of the contractor, the project may be occupied andused for the purposes for which it was constructed without payment of anyinterest on amounts withheld past the 45 day limit.
No payment shall be delayedbecause of the failure of another prime contractor on the project to completehis contract. Should final payment to any prime contractor beyond the date thecontracts have been certified to be completed by the designer or architect,accepted by the owner, or occupied by the owner and used for the purposes forwhich the project was constructed, be delayed by more than 45 days, the primecontractor shall be paid interest, beginning on the 46th day, at the rate ofone percent (1%) per month or fraction thereof unless a lower rate is agreedupon on the unpaid balance as may be due. In addition to the above finalpayment provisions, periodic payments due a prime contractor duringconstruction shall be paid in accordance with the provisions of this sectionand the payment provisions of the contract documents that do not conflict withthis section, or the prime contractor shall be paid interest on any unpaidamount at the rate stipulated above for delayed final payments. The interestshall begin on the date the payment is due and continue until the date on whichpayment is made. The due date may be established by the terms of the contract.Funds for payment of the interest on state‑owned projects shall beobtained from the current budget of the owning department, institution, oragency. Where a conditional acceptance of a contract exists, and where theowner is retaining a reasonable sum pending correction of the conditions, intereston the reasonable sum shall not apply.
(b) Within seven daysof receipt by the prime contractor of each periodic or final payment, the primecontractor shall pay the subcontractor based on work completed or serviceprovided under the subcontract. If any periodic or final payment to thesubcontractor is delayed by more than seven days after receipt of periodic orfinal payment by the prime contractor, the prime contractor shall pay thesubcontractor interest, beginning on the eighth day, at the rate of one percent(1%) per month or fraction thereof on the unpaid balance as may be due.
(b1) No retainage onperiodic or final payments made by the owner or prime contractor shall beallowed on public construction contracts in which the total project costs areless than one hundred thousand dollars ($100,000). Retainage on periodic orfinal payments on public construction contracts in which the total projectcosts are equal to or greater than one hundred thousand dollars ($100,000) isallowed as follows:
(1) The owner shall notretain more than five percent (5%) of any periodic payment due a primecontractor.
(2) When the project isfifty percent (50%) complete, the owner, with written consent of the surety,shall not retain any further retainage from periodic payments due thecontractor if the contractor continues to perform satisfactorily and anynonconforming work identified in writing prior to that time by the architect,engineer, or owner has been corrected by the contractor and accepted by thearchitect, engineer, or owner. If the owner determines the contractor'sperformance is unsatisfactory, the owner may reinstate retainage for eachsubsequent periodic payment application as authorized in this subsection up tothe maximum amount of five percent (5%). The project shall be deemed fiftypercent (50%) complete when the contractor's gross project invoices, excludingthe value of materials stored off‑site, equal or exceed fifty percent(50%) of the value of the contract, except the value of materials stored on‑siteshall not exceed twenty percent (20%) of the contractor's gross projectinvoices for the purpose of determining whether the project is fifty percent(50%) complete.
(3) A subcontract on acontract governed by this section may include a provision for the retainage onperiodic payments made by the prime contractor to the subcontractor. However,the percentage of the payment retained: (i) shall be paid to the subcontractorunder the same terms and conditions as provided in subdivision (2) of thissubsection and (ii) subject to subsection (b3) of this section, shall notexceed the percentage of retainage on payments made by the owner to the primecontractor. Subject to subsection (b3) of this section, any percentage ofretainage on payments made by the prime contractor to the subcontractor thatexceeds the percentage of retainage on payments made by the owner to the primecontractor shall be subject to interest to be paid by the prime contractor tothe subcontractor at the rate of one percent (1%) per month or fractionthereof.
(4) Within 60 days afterthe submission of a pay request and one of the following occurs, as specifiedin the contract documents, the owner with written consent of the surety shallrelease to the contractor all retainage on payments held by the owner: (i) theowner receives a certificate of substantial completion from the architect,engineer, or designer in charge of the project; or (ii) the owner receivesbeneficial occupancy or use of the project. However, the owner may retain sufficientfunds to secure completion of the project or corrections on any work. If theowner retains funds, the amount retained shall not exceed two and one‑halftimes the estimated value of the work to be completed or corrected. Anyreduction in the amount of the retainage on payments shall be with the consentof the contractor's surety.
(5) The existence of anythird‑party claims against the contractor or any additive change ordersto the construction contract shall not be a basis for delaying the release of anyretainage on payments.
(b2) Full payment, lessauthorized deductions, shall also be made for those trades that have reachedone hundred percent (100%) completion of their contract by or before theproject is fifty percent (50%) complete if the contractor has performedsatisfactorily. However, payment to the early finishing trades is contingentupon the owner's receipt of an approval or certification from the architect ofrecord or applicable engineer that the work performed by the subcontractor isacceptable and in accordance with the contract documents. At that time, theowner shall reduce the retainage for such trades to five‑tenths percent(0.5%) of the contract. Payments under this subsection shall be made no laterthan 60 days following receipt of the subcontractor's request or immediatelyupon receipt of the surety's consent, whichever occurs later. Early finishingtrades under this subsection shall include structural steel, piling, caisson,and demolition. The early finishing trades for which line‑item release ofretained funds is required shall not be construed to prevent an owner or anowner's representative from identifying any other trades not listed in thissubsection that are also allowed line‑item release of retained funds.Should the owner or owner's representative identify any other trades to beafforded line‑item release of retainage, the trade shall be listed in theoriginal bid documents. Each bid document shall list the inspections requiredby the owner before accepting the work, and any financial information requiredby the owner to release payment to the trades, except the failure of the biddocuments to contain this information shall not obligate the owner to releasethe retainage if it has not received the required certification from thearchitect of record or applicable engineer.
(b3) Notwithstandingsubdivisions (2) and (3) of subsection (b1) of this section, and subsection(b2) of this section, following fifty percent (50%) completion of the project,the owner shall be authorized to withhold additional retainage from asubsequent periodic payment, not to exceed five percent (5%) as set forth insubdivision (1) of subsection (b1) of this section, in order to allow the ownerto retain two and one‑half percent (2.5%) total retainage through thecompletion of the project. In the event that the owner elects to withholdadditional retainage on any periodic payment subsequent to release of retainagepursuant to subsection (b2) of this section, the general contractor may alsowithhold from the subcontractors remaining on the project sufficient retainageto offset the additional retainage held by the owner, notwithstanding theactual percentage of retainage withheld by the owner of the project as a whole.
(b4) Neither the owner'snor contractor's release of retainage on payments as part of a payment in fullon a line‑item of work under subsection (b2) of this section shall affectany applicable warranties on work done by the contractor or subcontractor, andthe warranties shall not begin to run any earlier than either the owner'sreceipt of a certificate of substantial completion from the architect,engineer, or designer in charge of the project or the owner receives beneficialoccupancy.
(b5) The State or anypolitical subdivision of the State may allow contractors to bid on bondedprojects with and without retainage on payments.
(b6) Nothing insubsections (b1), (b2), (b3), and (b4) of this section shall operate to preventany agency or any political subdivision of the State from complying with therequirements of a federal contract or grant when the requirements of thefederal contract or grant conflict with subsections (b1), (b2), (b3), or (b4)of this section. Each bid document must specify when federal preemption of thissection shall apply.
(c) Repealed by SessionLaws 2007‑365, s. 1, effective January 1, 2008.
(d) Nothing in thissection shall prevent the prime contractor at the time of application andcertification to the owner from withholding application and certification tothe owner for payment to the subcontractor for unsatisfactory job progress;defective construction not remedied; disputed work; third party claims filed orreasonable evidence that claim will be filed; failure of subcontractor to maketimely payments for labor, equipment, and materials; damage to prime contractoror another subcontractor; reasonable evidence that subcontract cannot becompleted for the unpaid balance of the subcontract sum; or a reasonable amountfor retainage not to exceed the initial percentage retained by the owner.
(e) Nothing in thissection shall prevent the owner from withholding payment to the contractor inaddition to the amounts authorized by this section for unsatisfactory jobprogress, defective construction not remedied, disputed work, or third‑partyclaims filed against the owner or reasonable evidence that a third‑partyclaim will be filed. (1959, c. 1328; 1967, c. 860; 1979, c. 778; 1983, c. 804, ss. 1, 2;2007‑365, s. 1.)