New Changes to Existing Law Affects Contractor’s Rights to Payment and Retainage

The 2015-2016 Minnesota legislative session came to a close with little fan fair and few legislative accomplishments. However, the legislature did manage to pass, and Governor Dayton signed into law, two critical changes to Minnesota Statute § 337.10—the statute dealing with contractor’s “prompt payment” and retainage on private projects. These changes will apply to all building and construction contracts executed on or after August 1, 2016.

The first of these changes affects § 337.10, subdivision 3, which is commonly referred to as the “prompt payment statute”. Under existing law, § 337.10, subdivision 3 only allows unpaid contractors to recover interest on any unpaid amounts due, plus attorney’s fees and costs. In a radical departure from existing law, contractors will now be permitted to stop all work on a project if a prime contractor has not paid any undisputed amount within ten days after that amount is due. This change is particularly concerning for prime contractors because the unpaid contractor does not have to provide “cure notice”, meaning that the unpaid contractor can simply cease all work after the ten day period has elapsed without providing any prior notice to the prime contractor that it intends to do so.

The second major change to § 337.10 affects subdivision 4, which will limit retainage (i.e., a portion of the contract price withheld until a contractor’s work is substantially complete) to five percent on all projects subject to Minnesota law. This change will force many prime contractors operating in Minnesota to adjust their customary retainage’s in order to meet this five percent cap.

Undoubtedly, these changes will affect the way many contractors approach building and construction projects in Minnesota. The attorneys at Sauro & Alton PLLC are available to help you and your company ensure that your building and construction contracts are finalized before the August 1 deadline or can ensure that you are in full compliance with the new changes to § 337.10 after these changes become law.