Support Application of Federal Prompt Pay to HUD

Background:

• The Prompt Payment Act, which requires federal agencies to pay their bills on a timely basis, does not apply to the vast majority of projects procured by HUD. The Act (31 USC Sec. 3901-3907) requires Federal agencies to pay their contractor within 30 days of receiving a proper invoice and requires agencies to pay interest on payments not made within that time. It also requires prime contractors to pay subcontractors and suppliers within seven days of being paid by the owner for appropriate work under the contract. The Department of Housing and Urban Development does not require this provision on the majority of their housing projects, putting many contractors at risk of not getting paid upon completion of their work.

AGC Message:

• Most Project Funds Administered by the Department of Housing and Urban Development (HUD) are Not Subject to the Prompt Payment Act. Many HUD projects provide interest-free capital advances to private, nonprofit sponsors to finance the development of supportive housing. Because these funds are passed to state and local entities in the form of grants, these dollars are not subject to the Federal Prompt Payment Act.
• Without a Timely and Equitable Flow of Funds, Projects Will Suffer and So Will its Participants. Prime contractors are firmly committed to meeting their obligations to their subcontractors and suppliers in a timely manner. The life-blood of the construction industry is the flow of money from owner to contractor, and in turn to the subcontractors, specialty contractors, suppliers, and the surety and insurers. Funds need to flow in a reasonable time frame throughout the project.
• HUD Has No Authority to Compel Owners to Meet their Obligations to Contractors. Since all work performed is subject to inspection by state and local authorities, HUD has no authority in compelling owners to release funds owed to contractors. Because there is no legal authority forcing owners to release these funds, there is no incentive for those owners to promptly return funds owed to contractors who have successfully completed their obligations to the owner.
• Contractors Have No Legal Recourse to Address Late Payments Other than Litigation. Owners who have benefited from the successful completion of a construction project should be willing to demonstrate their ability to pay their contractor. Accordingly, contractors should take steps, including legal action when appropriate, to protect their interests and the interests of their subcontractors and suppliers.