The Montana Prompt Payment Act: What Construction Owners, Contractors, and Subcontractors Need to Know
In the construction industry, cash flow can make or break a project. General contractors rely on timely payments from project owners to pay subcontractors, suppliers, and employees. Subcontractors, in turn, depend on prompt payment to cover labor, equipment, materials, and operating expenses.
When payments are delayed, the consequences can extend beyond a single invoice. Delays can strain business relationships, disrupt project schedules, and lead to costly disputes.
Montana law addresses these issues through the Montana Prompt Payment Act, Montana Code Annotated §§ 28-2-2101 through 28-2-2117. The law establishes rules governing payment applications, deadlines for approving and paying invoices, permissible reasons for withholding payment, and remedies for late payment.
Understanding these requirements can help owners, general contractors, and subcontractors protect their contractual rights and avoid preventable disputes.
What Is the Montana Prompt Payment Act?
The Montana Prompt Payment Act establishes statutory requirements for paying contractors and subcontractors on covered construction projects. Its purpose is to promote predictable payment practices and help ensure that parties receive payment for work properly performed and materials supplied under their contracts.
Among other things, the law addresses:
Monthly progress payment applications and final payment requests.
Deadlines for approving or disputing payment applications.
Payment obligations between owners, general contractors, and subcontractors.
Restrictions on retainage.
Interest and other remedies for delayed payments.
The right to suspend performance or terminate a contract in certain circumstances.
The Act generally applies to covered construction projects in Montana, but important exceptions and project-specific requirements may apply. For example, certain residential projects or improvements with a total cost of less than $400,000 are excluded under Montana Code Annotated § 28-2-2107.
Owners and contractors should therefore determine whether the statute applies to their particular project before relying on its deadlines or remedies.
1. Payment Applications Must Follow the Contract's Billing Cycle
Under Montana Code Annotated § 28-2-2103, covered construction contracts generally must establish a monthly billing cycle for progress payment requests and final payment requests, subject to statutory exceptions.
Payment applications should reflect the actual or estimated work performed and materials supplied during the applicable billing period. Contractors must submit their requests in accordance with the contract's requirements.
This makes the payment application process especially important. Even when work has been completed, a contractor may encounter payment problems if its application does not comply with contractual requirements.
Practical takeaway: Contractors should carefully review billing deadlines, required supporting documentation, and submission procedures before starting work. Owners should clearly identify who is authorized to receive payment applications and ensure that applications are routed to the appropriate person.
Maintaining accurate records of when an application was submitted and received can be critical if a dispute later arises.
2. Owners Generally Have 21 Days to Disapprove a Payment Request
One of the Act's most important protections is the deadline for responding to a payment application.
Under § 28-2-2103, a contractor's payment request generally is considered approved 21 days after the owner receives it unless the owner provides a written statement identifying the specific items being disapproved before that deadline.
An owner may have legitimate reasons to dispute all or part of an application. The statute identifies grounds that include:
Unsatisfactory progress on the project.
Failure to correct defective work or materials.
Disputed work or materials.
Failure to comply with material contract requirements, including applicable documentation requirements.
Failure to pay amounts owed to laborers, suppliers, or subcontractors.
Damage to the owner.
Reasonable evidence that the remaining contract balance will be insufficient to complete the project.
However, the owner cannot simply disregard a payment application or rely on an unexplained objection. If the owner ignores the application, then the payment request is deemed approved. The statute requires written notice identifying the specific items being disapproved and the applicable grounds.
If only part of the application is disputed, the undisputed remainder is treated as approved under the statute.
Practical takeaway for owners: Establish a reliable process for reviewing payment applications and issuing timely, specific written objections.
Practical takeaway for contractors: Track the date each application is received, preserve submission records, and review any rejection carefully. An untimely or insufficiently specific response may have significant legal consequences.
3. Approved Payments Generally Must Be Made Within Seven Days
The Act does not stop at requiring owners to review payment applications promptly. It also establishes a deadline for paying approved amounts.
Under § 28-2-2103, an owner generally must pay an approved progress or final payment amount within seven days after approval.
The law also addresses payments farther down the construction chain. When a general contractor receives a periodic or final payment from an owner or state agency, the contractor generally must pay its subcontractor the full amount due under the subcontract within seven days, provided the applicable statutory and contractual requirements are satisfied.
Similar seven-day payment obligations apply when a subcontractor receives payment and owes amounts to another subcontractor.
These requirements make prompt payment a responsibility that can extend through multiple tiers of a construction project.
For example, assume a general contractor receives an approved payment of $150,000 from the project owner. If $45,000 is due to a subcontractor for qualifying work and materials, the general contractor generally must pay that subcontractor the amount due within the statutory seven-day period after receiving the owner's payment.
The exact amount owed will depend on the subcontract, the work performed, and any legally supportable dispute.
An important distinction: The seven-day flow-down requirement generally runs from the contractor's receipt of payment. It should not be confused with an unconditional guarantee that a subcontractor will be paid seven days after submitting its invoice, regardless of whether the upstream payment has been received.
4. Retainage Is Limited by Montana Law
Retainage is the portion of a construction payment withheld until a specified stage of the project or until applicable completion requirements are satisfied.
Owners sometimes use retainage to protect against incomplete work, defective construction, or outstanding contractual obligations. Montana law places limits on this practice.
Under Montana Code Annotated § 28-2-2110, retainage on covered construction contracts generally may not exceed 5%. The percentage withheld by an owner from a general contractor also sets the maximum percentage that the general contractor may withhold from a subcontractor.
The statute further addresses the release of retainage when separately priced portions of work receive final acceptance and establishes requirements concerning payment of retainage to contractors or subcontractors who have completed their portions of the work.
These rules matter because excessive retainage can place unnecessary financial pressure on contractors and subcontractors that have already incurred substantial project costs.
Practical takeaway: Owners and general contractors should review their retainage provisions for compliance with Montana law. Subcontractors should confirm that the retainage provisions in their agreements are consistent with the applicable statutory limits and the project's payment terms.
Public projects may also be subject to additional statutory requirements and agency-specific contract provisions.
5. Late Payment Can Lead to Interest, Attorney Fees, and Other Remedies
Failure to comply with the Act's payment requirements can expose a party to more than the original unpaid invoice.
Montana Code Annotated § 28-2-2104 addresses interest on delayed payments. Section 28-2-2105 provides that the prevailing party in a civil action to enforce an obligation imposed by the Act is entitled to reasonable attorney fees and costs for trial and appeal. Where the dispute is submitted to arbitration, the arbitrator may award fees and costs as permitted by the statute.
Section 28-2-2106 also clarifies that the remedies available under the Act are not exclusive of other remedies available under applicable law or the contract.
The financial consequences of a payment dispute can therefore include interest, legal expenses, and additional contractual or statutory claims.
The availability and amount of any recovery will depend on the applicable statutory provisions, the contract, the facts, and the procedural posture of the dispute.
For that reason, parties should not assume that an overdue payment is merely an administrative inconvenience. A relatively modest invoice dispute can become substantially more expensive if it is not addressed promptly.
6. Contractors May Have the Right to Suspend Work or Terminate a Contract
Montana law also addresses the consequences of a failure to make prompt payment.
Under Montana Code Annotated § 28-2-2117, a contractor or subcontractor may have statutory rights to suspend performance or terminate a construction contract when another party fails to make prompt payment as required by the Act. The availability of these rights depends on the statute's requirements and the circumstances of the particular dispute.
This is a significant consideration for contractors facing extended nonpayment. Continuing to perform without receiving payment can increase the amount at risk, but stopping work without following the applicable legal and contractual requirements can create a separate dispute.
Montana Code Annotated § 28-2-2116 also makes certain construction contract provisions unenforceable, including provisions that prohibit a party from suspending performance or terminating a contract when another party fails to make prompt payment as provided by the statute.
Before suspending work or terminating an agreement, contractors should obtain legal advice about the applicable notice requirements, contractual provisions, and potential consequences. A carefully documented and legally compliant response is generally preferable to an abrupt work stoppage.
7. Practical Steps to Avoid Prompt Payment Disputes
Owners, general contractors, and subcontractors can reduce payment disputes by implementing consistent procedures throughout the project.
For project owners
Establish a clear payment application process and monthly billing cycle.
Designate the person authorized to receive payment requests.
Review applications promptly and document specific grounds for any disapproval.
Pay approved amounts within the applicable statutory deadline.
Review retainage provisions and confirm that withholding practices comply with Montana law.
For general contractors
Maintain a calendar of payment application deadlines and receipt dates.
Review subcontractor invoices before submitting the corresponding application to the owner.
Include appropriate payment timing and documentation requirements in subcontracts.
Track owner payments and promptly distribute amounts owed to subcontractors.
Keep written records of disputed work, defective work, backcharges, and payment communications.
For subcontractors
Submit invoices and supporting documentation in the required format.
Keep records showing when invoices were delivered and received.
Monitor retainage deductions and compare them with the applicable contract terms and statutory limits.
Follow up promptly when an expected payment is overdue.
Preserve relevant contracts, change orders, invoices, payment applications, correspondence, and proof of work performed.
Good documentation can make a meaningful difference when a payment dispute arises. Clear records help establish what work was completed, what was billed, when an application was received, whether an objection was timely, and what amounts remain unpaid.