BAM NEWS

Prompt Pay For Subcontractors
That’s The Topic Of This Week At BAM This morning, the BAM Government Relations Committee met to discuss a prompt pay bill moving through the legislature. There has been some controversy around the issue so I wanted to share with you BAM’s position, our actions to date and an overview of the issue. BAM Position Paper: Prompt Pay Law for Subcontractors Approved by the BAM Government Relations Committee, March 27, 2009 For the second year in a row, a bill has been introduced at the State Legislature that would eliminate the exemption residential construction currently has to Minnesota’s prompt pay law. (House File 1056/Senate File 638).
BAM’s Positions:
1. BAM does not oppose eliminating the residential exemption to the prompt payment law.
2. BAM supports the prompt pay law in the absence of a written contract between two parties.
BAM Position is Statewide:
BAM supports legislation that increases the professionalism of the industry but it must be for the entire industry in every part of the state.
BAM’s legislative positions at the State Capitol are vetted through an open Government Relations Committee process. All members of BAM are welcome to participate. The Committee conducts conference calls every two weeks during the legislative session and through the remainder of the year. Please contact Pam Perri Weaver if you would like to participate in the committee at pamw@bamn.org.
Please direct any comments about BAM’s position on the prompt pay issue to BAM Government Relations Chair Mike Gohman (W Gohman Construction) mike@wghoman.com or BAM President Monte Mraz (Heritage, MN) monte@heritagemn.com.
BAM Legislative Actions on the Prompt Pay bill To Date BAM did not speak against Senate File 638 at the Senate Business Industry & Jobs committee hearing on March 2. BAM did not speak against House File 1056 at the House Labor & Consumer Protection committee hearing on March 6.
BAM wrote talking points for members who attended the March 6 hearing and were prepared to testify about our concerns with House File1056. We decided not to testify against the bill or use the talking points because the author said he would work with BAM to resolve our concerns. Unfortunately, the talking points were distributed in a recent email to BAM members without full disclosure on their intent, purpose or the fact that they were never used.
BAM did not speak against Senate File 638 at the Senate Judiciary hearing on March 12, instead BAM proposed the amendments below:
a. Allow builders who are constructing four units or less to negotiate payment terms with their subcontractor and/or supplier.
b. Allow a business who finances construction or improvements to residential real estate be exempt from the prompt pay law. The amendments were rejected by the Senator sponsoring the bill and failed. The Committee Chair urged the bill author to work with BAM to find compromise. Issue Background: Currently, commercial construction contracts payment terms are specifically laid out in Minnesota State Statutes Chapter 337.10 subdivision 3. “ …require the prime contractor and all subcontractor or materials supplier contract within ten days of receipt by the party responsible for payment of payment for undisputed services provided by the party requesting payment.
The contract shall be deemed to require the party responsible for payment to pay interest of 1 ½ percent per month to the party requesting payment on any undisputed amount not paid on time.” Residential Construction has been exempt from the law. Why? In a commercial construction deal, a subcontractor and a contractor are not on a level playing field. The commercial contractor may not be a Minnesota company making it difficult and expensive for a sub to be paid.
The commercial contractor if doing business with the state or other government entity may not have control over when they will be paid. This also makes it difficult and expensive for a subcontractor seeking to be paid from a commercial construction project. Because of this, the legislature stepped in to dictate payment terms between these two parties. However, residential construction is primarily a local transaction where all the players in a residential deal are usually in the same community.
In some parts of the state, the residential construction industry was operating on a handshake, on the extension of credit and in good faith. If the sub contractor did not want to extend credit or agree to the payment terms the builder was asking, either party could walk away. In other parts of the state, the bank or a construction finance company would not allow a draw without a lien waiver or they paid the sub directly. Residential construction