Federal prompt payment: the 7-day rule for subcontractors

On a federal construction contract, the prime contractor must pay its subcontractors not later than 7 days from receipt of payment from the government for your satisfactory work. That deadline comes from a contract clause in the Federal Acquisition Regulation (FAR), and it must be written into your subcontract. If the prime pays late, an interest penalty applies.

This guide explains where the rule comes from, what it covers, what happens when a prime holds back money, and what records help you if a payment goes missing. It covers federal contracts only. Private jobs and state or local public jobs follow other laws.

What is the 7-day rule?

Federal law says agency construction contracts must require the prime contractor to put a payment clause in each subcontract. 31 U.S.C. 3905 calls for payment for satisfactory performance within 7 days after the prime receives payment from the agency. The matching FAR clause, 52.232-27, Prompt Payment for Construction Contracts, uses the same 7-day wording.

Two details matter:

• The clock starts when the prime is paid, not when you bill. If the agency is slow, your 7 days start later.
• The payment is due “out of such amounts as are paid to the Contractor,” so it ties to the amount the agency actually paid for your work.

Does it reach lower-tier subs and suppliers?

Yes. The statute says these requirements extend to each lower tier of subcontractors and suppliers. Material suppliers are named as well. A second-tier sub should find the same payment clause and interest clause in its own subcontract, passed down from the first tier.

What interest applies when a payment is late?

Your subcontract must include an interest penalty clause for each payment not made on time. Under FAR 52.232-27, the penalty runs from the day after the required payment date until the payment is made. The rate is the one set by the Secretary of the Treasury and published in the Federal Register, as 31 U.S.C. 3902 describes. Look up the current rate when you need it, since it can change.

The statute also says the government does not pay this interest. A prime’s interest penalty may not be treated as an obligation of the United States and cannot be recovered through contract modifications or cost claims.

Can the prime hold back part of your payment?

Sometimes. Parties may negotiate retainage, and a withholding does not trigger a late-payment penalty as long as the notice rules are followed. A prime that withholds because of a performance problem must:

1. Tell you in writing. Under FAR 52.232-27, the notice goes out as soon as practicable after the prime learns the cause, and before your payment due date.
2. State the amount withheld, the specific causes, and the remedial actions you need to take to be paid.
3. Send a copy to the contracting officer.
4. In most cases, pay the withheld amount within 7 days after the problem is corrected, or owe the interest penalty.

The statute adds a check on the prime’s side: the prime cannot request agency payment for withheld amounts until it certifies that you are entitled to them.

A notice that says only “payment held” does not meet that standard. If you get one, ask the prime in writing for the amount, the cause and the fix.

Where does retainage fit?

The statute lets the parties negotiate retainage terms. So the 7-day rule does not by itself tell you how much can be held or when it is released. Your subcontract and the prime contract control that. See our guide to construction retainage rules for the common patterns.

What if the prime still does not pay?

The law does not make the government a party to your dispute. 31 U.S.C. 3905 says payment disputes between a contractor and a subcontractor are not disputes to which the United States is a party. It also says it does not restrict other remedies available to subcontractors. One such remedy on many federal projects is a claim on the payment bond, which our post on the Miller Act payment bond claim explains, including its deadlines.

Because the details depend on your contract and your facts, talk to a construction attorney before you send a demand or file a claim.

What records should you keep?

A late-payment claim comes down to dates. Keep these together for each pay application:

• The date you submitted the pay application, and to whom.
• The date and amount of any approval or partial approval you were told about.
• Proof of when the prime was paid by the agency, if the prime will share it.
• The date your payment arrived, with the remittance detail.
• Any withholding notice, and your written reply.
• The payment and interest clauses in your subcontract.

Do not forget the paperwork that can hold a payment up in the first place. On Davis-Bacon jobs, certified payroll is due weekly. See what certified payroll is and the Statement of Compliance guide. A missing or late payroll can give a prime a reason to hold back money, so send it on time.

Where Payrung fits

Payrung is being built to turn your payroll export and schedule of values into pay applications, certified payroll and lien waivers, so the paperwork is ready when the billing cycle closes. It is not built yet. Join the waitlist.

This article is general information, not legal advice. Payment rights depend on your contract, the jurisdiction and the facts, so check with a qualified attorney.