As construction activity continues to increase in Nevada it is important that contractors and suppliers protect their right to payment for work and/or materials supplied to works of improvement. There are numerous tools which can be used, one of which is the Nevada Private Work Prompt Pay Act (NRS 624.609 et seq.). The statutes were enacted to help ensure payment to those supplying labor and material to projects in Nevada. There are specific requirements regarding the time in which payment must be made. If a contractor enters into an agreement with the owner of the project, then payment will be due according to the payment terms contained in that contract. In the event the contract does not contain a schedule of payments, then payment is due within 21 days after the date the prime (general) contractor submits a request for payment. Timelines are key and careful attention should be made to ensure that all pertinent dates are tracked.
Owners may withhold payment in certain circumstances, however, strict adherence to statutory requirements must be followed. It is common for owners to withhold a retention amount from each payment which is due the prime contractor. While in many jurisdictions this amount may vary, Nevada has limited the retention amount to a maximum of 5% of the payment to be made. Any provision to the contrary is void under Nevada law.
Owners may also withhold payment for any work which has not yet been completed, unless the contract calls for such payment to be made. Additionally, owners may withhold payment for costs and expenses reasonably necessary to correct or repair any work which is the subject of the request for payment and which is not materially in compliance with the agreement to the extent that such costs and expenses exceed 50 percent of the retention amount withheld. As seen, tracking the amount retention held is important as Nevada law seeks to avoid any “over withholding”. Payment may likewise be conditioned upon the receipt of releases issued by downstream subcontractors and/or suppliers. The releases forms which should be used are set forth in related Nevada statutes and it is recommended that the statutory forms be used.
Additionally protections are also afforded contractors with regard to the type of notice which must be provided prior to payment being withheld. Prior to withholding payment an owner must provide a written notice of its intent to withhold payment. The notice must be: 1) written; 2) be provided on or before the date payment is due; 3) give a reasonably detailed explanation of the condition or the reason the owner will withhold payment , including, without limitation, a specific reference to the provision or section of the agreement, and any documents relating thereto, and the applicable building code, law or regulation with which the prime contractor has failed to comply; and, 4) must be signed by an authorized agent.
As noted, the amount of money subject to withholding is limited. This has been done to avoid the the practice of withholding all money from a contractor when only a portion of the work is in dispute. While the law concerning payments has been in force for a number of years, oftentimes owners and contractors are not aware of their rights and obligations, therefore it is critical make every effort to be aware of these important provisions.