Delaware Code Title 6 Sec. 3506 – Interest penalties on late payments
(a) Each construction contract awarded by an owner shall include:
(1) A payment clause which obligates the owner to pay the contractor for satisfactory performance under the contract within 30 days of the end of the billing period;
(2) An interest penalty clause which obligates the owner to pay the contractor 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 (a)(1) of this section;
(3) The clause required by this subsection shall not be construed to impair the right of the owner to include in its contracts provisions which permit the owner to retain a specified percentage of each progress payment otherwise due to a contractor for satisfactory performance under the contract 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 owner must provide written notice to contractor as to why payment is being withheld within 7 days of the date required for payment to the contractor.
Terms Used In Delaware Code Title 6 Sec. 3506
- Billing period: means the payment cycle agreed to by the parties, or, in the absence of an agreement, the calendar month within which the work is performed. See Delaware Code Title 6 Sec. 3501
- Contract: A legal written agreement that becomes binding when signed.
- Contractor: includes , but is not limited to, an architect, engineer, real estate broker or agent, subcontractor or other person, who enters into any contract with another person to furnish labor and/or materials in connection with the erection, construction, completion, alteration or repair of any building or for additions to a building, by such contractor, or for the sale to such other person of any lands and premises, whether owned by such contractor or another, upon which such contractor undertakes to erect, construct, complete, alter or repair any building or addition to a building. See Delaware Code Title 6 Sec. 3501
- Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Owner: means a person who has an interest in the lands or premises upon which a contractor has undertaken to erect, construct, complete, alter or repair any building or addition to a building. See Delaware Code Title 6 Sec. 3501
- Subcontractor: means a person who enters into a contract to furnish labor and/or materials to a contractor. See Delaware Code Title 6 Sec. 3501
(b) Each construction contract awarded by a contractor shall include:
(1) A payment clause which obligates the contractor to pay the subcontractor and each supplier for satisfactory performance under the subcontract within 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 and each supplier 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 (b)(1) of this section.
(c) 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.
(d) The clauses required by subsection (b) 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 and each supplier 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 or supplier as to why payment is being withheld within 7 days of the date required for payment to the subcontractor or supplier.
(e) If it is determined by a court of competent jurisdiction that a payment withheld pursuant to paragraph (a)(3) or subsection (d) of this section 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.
(f) Once a contractor has made payment to the subcontractor or supplier 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 or supplier shall be barred.
70 Del. Laws, c. 420, § ?2; 71 Del. Laws, c. 134, §§ ?1-5; 74 Del. Laws, c. 357, §§ ?2-4;