Provides relative to payments to contractors and subcontractors

House Bill 638 amends Louisiana Civil Code Article 2784 to establish new payment obligations and penalties for construction contracts involving improvements to non-residential immovable property. The bill imposes a 35-day payment deadline on owners or their authorized representatives to pay contractors upon receipt of a written payment request, replacing the previous standard of payment after issuance of a certificate of payment. It increases the daily penalty for late payment from 0.5 percent to 1.5 percent per day, eliminates the 15 percent cap on accumulated penalties, and requires contractors to pay subcontractors and suppliers within seven days of receiving payment from the owner rather than the previous 14-day timeframe. The bill also shortens the trigger period from 14 days to seven days for subcontractors and sub-subcontractors to qualify for penalty assessments, and it expressly includes accrued interest as part of the required payment distribution. Additionally, the legislation declares any contractual waiver of these provisions absolutely null and establishes a right of action for obligees to recover unpaid amounts and penalties with court costs and reasonable attorney fees awarded to the prevailing party.

The practical effect of this legislation falls heavily on owners of non-residential construction projects, general contractors, subcontractors, and material suppliers. Owners must now establish systems to process payment requests within 35 days or face daily accrual of 1.5 percent penalties on unpaid amounts, creating significant financial incentives for timely payment and potentially increasing the cost of project financing if payment delays occur. General contractors experience a compressed payment schedule, having only seven days rather than 14 days to distribute funds received from owners to their subcontractors and suppliers, which may strain cash flow management and require more efficient accounting systems. Subcontractors and material suppliers gain stronger protections through faster payment cycles and higher penalty rates, improving their ability to manage their own working capital and reducing the financial burden of funding construction projects. These changes particularly benefit smaller subcontractors and suppliers who often rely on prompt payment to meet their own obligations.

This legislation operates within the existing Louisiana Civil Code framework governing construction contracts and payment obligations between owners, contractors, and subcontractors. The bill explicitly exempts residential construction and improvements from its requirements, preserving different payment standards applicable to residential properties under existing law. The statute interacts with Louisiana contract law principles by rendering unenforceable any contractual provisions attempting to waive the payment timelines and penalty structures established herein, effectively making these requirements non-negotiable terms in qualifying construction contracts. The amendment also preserves and supplements existing remedies available to contractors and subcontractors under Louisiana law, making the rights created by this section supplemental rather than exclusive. The interest accrual provisions and the judgment date for interest cessation coordinate with general principles of contractual damages and prejudgment interest under Louisiana law, though the specific 1.5 percent daily rate established here supersedes general prejudgment interest calculations for non-residential construction payment disputes.