CHAPTER 420

FORMERLY

HOUSE BILL NO. 568

AS AMENDED BY HOUSE AMENDMENT NOS. 1 AND 2

AN ACT TO AMEND CHAPTER 35, TITLE 6 OF THE DELAWARE CODE RELATING TO BUILDING CONSTRUCTION PAYMENTS.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. This Act may be cited as the "Construction Prompt Payment Act".

Section 2. Amend Chapter 35, Title 6 of the Delaware Code by adding thereto a new § 3506 to read as follows:

"§ 3506. Interest penalties on late payments.

(a) Each construction contract awarded by a contractor shall include:

(1 ) a payment clause which obligates the contractor to pay the subcontractor for satisfactory performance under the subcontract within thirty (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 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 (I) of this subsection.

(b) 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.

(c) The clauses required by subsection (a) 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 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 as to why payment is being withheld within seven (7) days of the date required for payment to the subcontractor.

(d) If it is determined by a court of competent jurisdiction that a payment withheld pursuant to subsection (c) 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."

(e) Once a contractor has made payment to the subcontractor 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 shall be barred."

Section 3. Amend § 3501( I ), Title 6 of the Delaware Code, by deleting the word 'for' appearing after the phrase 'with another person' and before the phrase 'the erection. construction, completion, alteration or repair' and substituting in lieu thereof the phrase 'to furnish labor and/or materials in connection with'.

Section 4. This Act shall apply to all contracts entered into on or after the date of enactment.

Approved June 30, 1996