Chapter 08. Prompt Payment of Subcontractors
Regulation .01 Definitions.LinkCopy Citation
A.
In this chapter, the following terms have the meanings indicated.
B.
Terms Defined.
(1)
Undisputed Amount.
(a)
“Undisputed amount” means an amount owed by a contractor to a subcontractor or supplier for which there is no good faith dispute, including any retainage withheld.
(b)
“Undisputed amount” includes an amount withheld because of a dispute arising out of an agreement or occurrence unrelated to the agreement under which the amount is withheld.
(2)
“Prime contractor” means a person or firm that has a State procurement contract with a unit.
(3)
Contractor.
(a)
“Contractor” means a person or firm that:
(i)
Has an agreement to perform all or some of the work required under a State contract; and
(ii)
Subcontracts with another person or firm for performance of all or some of the work required under the contract.
(b)
“Contractor” includes a prime contractor and a subcontractor at any tier.
(4)
“Subcontractor” means a person or firm that has an agreement with a contractor to perform all or some of the contractor's work under a State contract.
(5)
“Supplier” has the same definition set forth in State Finance and Procurement Article. §15–226, Annotated Code of Maryland, and COMAR 21.01.02.01.B.
Regulation .02 Policy.LinkCopy Citation
It is the policy of the State that a contractor shall promptly pay to a subcontractor or supplier any undisputed amount to which the subcontractor or supplier is entitled for work under a State procurement contract.
Regulation .03 Responsibilities.LinkCopy Citation
A.
A contractor who receives a progress payment or a final payment shall pay a subcontractor or supplier an undisputed amount to which the subcontractor or supplier is entitled within 10 calendar days of receiving the payment.
B.
If a contractor withholds payment from a subcontractor or supplier within the time period in which the payment normally would be made, the contractor shall:
(1)
Notify the subcontractor or supplier in writing and state the reason why payment is being withheld;
(2)
Provide a copy of the notice to the prime contractor or supplier and, if different, to the person or firm that made the progress payment or final payment to the contractor; and
(3)
Provide a copy of the notice to the procurement officer.
C.
Written Notice of Nonpayment.
(1)
If a subcontractor or supplier does not receive a payment within the required time period, the subcontractor or supplier shall give written notice of the nonpayment to the procurement officer.
(2)
The notice shall:
(a)
Indicate the:
(i)
Name of the contractor and, if different, of the prime contractor;
(ii)
Project under which the dispute exists; and
(iii)
Amount in dispute;
(b)
Provide an itemized description on which the amount is based; and
(c)
If known, provide an explanation for any dispute concerning the payment not received.
Regulation .04 Duties.LinkCopy Citation
A.
Within 2 business days of receipt of written notice from a subcontractor or supplier, a representative of the unit designated by the procurement officer shall verbally contact the contractor that withheld payment to ascertain whether the amount withheld is an undisputed amount.
B.
If the representative of the unit determines that a part or all of the amount withheld is an undisputed amount, the representative of the unit shall instruct the contractor that withheld payment to pay the subcontractor or supplier the undisputed amount within 3 business days. The instruction shall be confirmed in writing.
C.
The representative of the unit shall verbally communicate to the subcontractor or supplier the results of discussions with the contractor that withheld payment.
Regulation .05 Actions.LinkCopy Citation
A.
If the contractor fails to pay the subcontractor or supplier the undisputed amount within the time instructed to do so under Regulation .04B of this chapter, the subcontractor or supplier may report the nonpayment in writing to the procurement officer.
B.
Meeting.
(1)
If the subcontractor or supplier notifies the procurement officer in writing under §A of this regulation that payment has not been made, the representative of the unit shall schedule a meeting to discuss the dispute with the unit's project manager, the contractor, the subcontractor or supplier, and any other person or entity that the representative considers to have an interest in the matter:
(a)
At a time and location designated by the representative of the unit; but
(b)
Not later than 10 calendar days after receiving written notice from the subcontractor or supplier under §A of this regulation.
(2)
The purpose of the meeting is to establish why the contractor has not paid the subcontractor or supplier in the required time period.
(3)
The representative of the unit shall require the parties to provide at the meeting any information that the representative believes necessary to evaluate the dispute.
(4)
The procurement officer may require the parties to submit documentation that the procurement officer deems appropriate.
Regulation .06 Remedies.LinkCopy Citation
A.
If the representative of the unit determines that the contractor is delinquent in payment of an undisputed amount to the subcontractor or supplier, the representative may order that further progress payments to the contractor that withheld payment shall be withheld until the subcontractor or supplier is paid.
B.
If payment is not paid to the subcontractor or supplier within 7 business days after the representative of the unit determines that the contractor is delinquent in paying the subcontractor or supplier under §A of this regulation, the representative shall schedule a second meeting to address the dispute:
(1)
At a time and location designated by the representative of the unit; but
(2)
Not later than 5 business days after the close of the 7-day period.
C.
If, at the completion of the second meeting, the representative of the unit determines that the contractor continues to be delinquent in payments owed to the subcontractor or supplier, the representative:
(1)
Shall order that further payments to the contractor not be processed until payment to the subcontractor or supplier is verified;
(2)
May order that all or some of the work under the contract or subcontract be suspended without affecting the contractually required completion date for the work, based on the failure of the contractor to meet obligations under the contract;
(3)
If the contractor is not a prime contractor, may order that the prime contractor act as a representative of the unit and:
(a)
Pay or cause payment of an amount determined as undisputed, together with any penalty assessed against the contractor under §C(4) of this regulation, to be made to the subcontractor or supplier from monies otherwise due or that may become due under the State contract for the contractor’s work;
(b)
From monies otherwise due or that may become due under the State contract for the contractor's work, place a payment for an undisputed amount and any penalty in an interest-bearing escrow account rather than making the payment to the subcontractor or supplier; or
(c)
Take other or further actions to resolve the dispute; and
(4)
Subject to §D of this regulation, may order that the contractor pay a penalty to the subcontractor or supplier, in an amount not exceeding $100 per day, from the date that payment was required under Regulation .04B of this chapter.
D.
A penalty may not be imposed under §C(3) of this regulation for any period that the representative of the unit determines the subcontractor or supplier was not diligent in reporting nonpayment to the procurement officer.
E.
A prime contractor and each contractor to whom an instruction or order is directed under this regulation shall comply with the instruction or order.
Regulation .07 Appeal.LinkCopy Citation
A.
A contractor or a subcontractor or supplier may appeal a decision under Regulation .06C of this chapter to the procurement officer.
B.
The contractor shall comply with the procurement officer's decision.
Regulation .08 Decision.LinkCopy Citation
A.
An act, failure to act, or decision of a procurement officer or a representative of a unit, concerning a payment dispute between a contractor and subcontractor or supplier under this chapter, may not:
(1)
Affect the rights of the contracting parties under any other provision of law;
(2)
Be used as evidence on the merits of a dispute between the unit and the contractor or the contractor and the subcontractor or supplier in any other proceeding; or
(3)
Result in liability or prejudice the rights of the unit or a prime contractor that acts as a representative of a unit under Regulation .06C(3) of this chapter.
B.
A decision of a procurement officer or a representative of the unit designated by the procurement officer under this chapter is not subject to judicial review or the provisions of COMAR 21.10.04.
Chapter annotations
Authority: State Finance and Procurement Article, §15-226, Annotated Code of Maryland
History: Effective date: October 2, 2000 (27:19 Md. R. 1730)
History: Regulation .01 amended effective July 9, 2001 (28:13 Md. R. 1216); September 18, 2023 (50:18 Md. R. 800)
History: Regulation .01B amended effective March 3, 2025 (52:4 Md. R. 221)
History: Regulation .02 amended effective September 18, 2023 (50:18 Md. R. 800); March 3, 2025 (52:4 Md. R. 221)
History: Regulation .03 amended effective July 9, 2001 (28:13 Md. R. 1216); March 3, 2025 (52:4 Md. R. 221)
History: Regulation .04 amended effective July 9, 2001 (28:13 Md. R. 1216); March 3, 2025 (52:4 Md. R. 221)
History: Regulation .045 amended effective March 3, 2025 (52:4 Md. R. 221)
History: Regulation .05B amended effective July 9, 2001 (28:13 Md. R. 1216)
History: Regulation .06 amended effective July 9, 2001 (28:13 Md. R. 1216); September 18, 2023 (50:18 Md. R. 800); March 3, 2025 (52:4 Md. R. 221)
History: Regulation .07A amended effective March 3, 2025 (52:4 Md. R. 221)
History: Regulation .08A amended effective July 9, 2001 (28:13 Md. R. 1216); March 3, 2025 (52:4 Md. R. 221)