Maryland Statutes
Part IV - Construction Contracts -- Prompt Payment of Subcontractors
Section 15-226 - Policy Established; Timing of Payments; Notice Upon Nonpayment; Disputes; Appeals

(a)    In this section, “undisputed amount” means an amount owed by a contractor to a subcontractor for which there is no good faith dispute, including any retainage withheld.
    (b)    It is the policy of the State that, for work under a State procurement contract for construction:
        (1)    a contractor shall promptly pay to a subcontractor any undisputed amount to which the subcontractor is entitled; and
        (2)    a subcontractor shall promptly pay to a lower tier subcontractor any undisputed amount to which the lower tier subcontractor is entitled.
    (c)    (1)    A contractor shall pay a subcontractor an undisputed amount to which the subcontractor is entitled within 10 days of receiving a progress or final payment from the State.
        (2)    If a contractor withholds payment from a subcontractor, within the time period in which payment normally would be made, the contractor shall:
            (i)    notify the subcontractor in writing and state the reason why payment is being withheld; and
            (ii)    provide a copy of the notice to the procurement officer.
    (d)    (1)    If a subcontractor does not receive a payment within the required time period, the subcontractor may give written notice of the nonpayment to the procurement officer.
        (2)    The notice shall:
            (i)    indicate the name of the contractor, the project under which the dispute exists, and the amount in dispute;
            (ii)    provide an itemized description on which the amount is based; and
            (iii)    if known, provide an explanation for any dispute concerning payment by the contractor.
    (e)    (1)    Within 2 business days of receipt of written notice from a subcontractor, a representative of the unit designated by the procurement officer shall verbally contact the contractor to ascertain whether the amount withheld is an undisputed amount.
        (2)    If the representative of the unit decides that a part or all of the amount withheld is an undisputed amount, the representative of the unit shall instruct the contractor to pay the subcontractor the undisputed amount within 3 business days.
        (3)    The representative of the unit shall verbally communicate to the subcontractor the results of discussions with the contractor.
        (4)    If the contractor is instructed to pay the subcontractor and the subcontractor is not paid within the time instructed under paragraph (2) of this subsection, the subcontractor may report the nonpayment in writing to the procurement officer.
    (f)    (1)    If the subcontractor notifies the procurement officer under subsection (e)(4) of this section that payment has not been made, the representative of the unit shall schedule a meeting to discuss the dispute with the unit’s project manager, the contractor, and the subcontractor:
            (i)    at a time and location designated by the representative of the unit; but
            (ii)    not later than 10 days after receiving notice from the subcontractor under subsection (e)(4) of this section.
        (2)    The purpose of the meeting is to establish why the contractor has not paid the subcontractor in the required time period.
        (3)    The representative of the unit shall require the parties to provide at the meeting any information that the representative believes necessary to evaluate the dispute.
        (4)    If the representative of the unit determines that the contractor is delinquent in payment of an undisputed amount to the subcontractor, further progress payments to the contractor may be withheld until the subcontractor is paid.
        (5)    If payment is not paid to the subcontractor within 7 days after the representative of the unit determines that the contractor is delinquent in paying the subcontractor under this subsection, the representative shall schedule a second meeting to address the dispute:
            (i)    at a time and location designated by the representative of the unit; but
            (ii)    not later than 5 days after the close of the 7-day period.
        (6)    If, at the completion of the second meeting, the representative of the unit determines that the contractor continues to be delinquent in payments owed to the subcontractor, the representative:
            (i)    shall order that further payments to the contractor not be processed until payment to the subcontractor is verified;
            (ii)    may order that work under the contract be suspended based on the failure of the contractor to meet obligations under the contract; and
            (iii)    subject to paragraph (7) of this subsection, may require that the contractor pay a penalty to the subcontractor, in an amount not exceeding $100 per day, from the date that payment was required under subsection (e)(2) of this section.
        (7)    A penalty may not be imposed under paragraph (6)(iii) of this subsection for any period that the representative of the unit determines the subcontractor was not diligent in reporting nonpayment to the procurement officer.
    (g)    (1)    A contractor or a subcontractor may appeal a decision under subsection (f)(6) of this section to the procurement officer.
        (2)    The contractor shall comply with the procurement officer’s decision.
    (h)    An act, failure to act, or decision of a procurement officer or a representative of a unit concerning a payment dispute between a contractor and subcontractor or between subcontractors under this section may not:
        (1)    affect the rights of the contracting parties under any other provision of law;
        (2)    be used as evidence on the merits of a dispute between the unit and the contractor or the contractor and subcontractor in any other proceeding; or
        (3)    result in liability against or prejudice the rights of the unit.
    (i)    A decision of a procurement officer or a representative of the unit designated by the procurement officer under this section is not subject to judicial review or the provisions of Part III of this subtitle.
    (j)    (1)    A unit shall include in each State procurement contract for construction a provision:
            (i)    governing prompt payment to subcontractors; and
            (ii)    requiring inclusion of a similar provision in each subcontract at any tier.
        (2)    The contract provision shall establish procedures and remedies for the resolution of payment disputes similar to the process and remedies prescribed in subsections (c) through (g) of this section.

Structure Maryland Statutes