Should New Hampshire enact a Prompt Pay law for private construction jobs? I'd like to get readers' opinions on this, but my answer is “No.” New Hampshire has always placed a premium on freedom of contract, and parties are free to prescribe whatever payment terms they wish. Particularly when it comes to general contractor-subcontractor relations, the disparate bargaining strength between GC's and subs that motivates Prompt Pay laws elsewhere strikes me as less stark in New Hampshire.
Where I typically see unjustifiably delayed payments to subs is when an owner withholds payment to a GC for reasons unrelated to a particular sub's work, yet the cash-strapped GC withholds payment from that sub. Even this complication can be contracted around.
One thing I do like about Prompt Pay laws is their elimination of the “double filter” that some subcontract forms contain, requiring a sub to perform its work to the satisfaction not only of the owner and/or architect but of the GC as well, who will occasionally spot a problem that the owner/architect may fail to catch, yet decide nevertheless to requisition for the work. If a Prompt Pay law is in effect, payment to the GC for the sub's work effectively becomes the test of its acceptability for purposes of paying the sub until such time – if ever – that the owner wises up. Most commercial prime contracts include language to the effect that payment by the owner is not deemed acceptance of the work paid for (and many subcontracts bind the sub to the same provisions that bind the GC to the owner), so the possibility of a “claw back” for deficient work previously paid for still exists at both levels. Prompt Pay laws prevent the GC from using money paid by the owner for such work as a rainy day fund against such a possible claw back, thereby creating an incentive for the GC not to requisition for defective work in the first place.
Because a GC is not required to pay a sub when the GC has other legitimate offsets against a sub's pay req, Prompt Pay laws typically allow bona fide reasons for withholding payments to subs despite the GC's receipt of payment from the owner for that sub's work. (Vermont, for example, allows for “withholding an amount equaling the value of any good faith claims against an invoicing contractor.”) The penalties imposed by Prompt Pay laws up the ante for the GC whenever the sub sues for the money retained as a setoff by the GC; if its basis for withholding payment is not sustained by the courts, the question of whether the GC's “good faith” is a defense to liability under the statute, and if so whether such good faith even existed, comes to the fore. While the matter is debatable, I am far from convinced that this type of added risk imposed on GCs is sound public policy.