A general contractor or subcontractor hires your company to do work on a construction project. Your company provides the goods, services, and other work requested and sends an invoice. Weeks pass, and no payment comes. You call about payment, but no payment comes. You send letters, emails, and all kinds of communications, all of which the general contractor or subcontractor ignores. Your company still receives no payment. Months and even years pass.
Let’s say that a year or two down the road, you file a lawsuit against the non-paying general contractor or subcontractor. Your company is certainly entitled to the outstanding invoice amount, but what about interest? And what rate of interest applies? What if the contract doesn’t state an interest rate? Are you still entitled to interest? Yes, you are almost always entitled to interest, and if the contract between the parties doesn’t state a different rate, the interest rate is likely 10% per annum.
This post explains in more depth what interest rates could apply to any given construction project.
The Interest Rate of the Written Contract
The easiest way to determine the applicable interest rate is to look at the written contract, if one exits. The contract terms between your company and the general contractor or subcontractor may state an interest rate that applies to all unpaid invoices, along with other terms, such as the right to recover attorney fees. If an interest rate is stated, this rate likely applies. (But if the subcontractor or contract was paid for your work but didn’t pay you, a higher rate of 12% per annum might apply, as explained below.)
Under Utah law, the interest rate under the contract can be whatever the parties agreed to, whether 1% per annum or 18% per annum. Even extremely high interest rates in business contracts, such as rates over 35% per annum, are likely enforceable. Although an interest rate is not enforceable under Utah law if a court deems it to be unconscionable, most courts won’t save a party from paying an extremely high interest rate just because the party claims later on down the road that the rate is unconscionable. Rather, courts generally let parties freely agree to interest rates and, thereafter, suffer any consequences and hardships that may follow.
The Default Rate When No Interest Rate Stated
In Utah, an interest rate of 10% per annum applies if the parties don’t agree to another rate. This default rate of 10% applies to all types of contracts, regardless of whether the contract is oral, written, or implied. Implied contracts are generally ones formed without a written or oral agreement but rather by the conduct of the parties. Put simply, every contract formed in Utah will almost certainly be governing by an agreed-upon interest rate or the default interest rate of 10% per annum.
The Interest Rate Where the Contractor of Subcontractor Was Paid
Under Utah law, general contractors and subcontractors are penalized if they receive payment for work done by their subcontractors and suppliers but don’t pay these subcontractors and suppliers. Specifically, along with being liable for attorney fees and costs in collecting unpaid amounts, an interest rate of 12% per annum applies to all unpaid amounts. (This rate is slightly higher than the default interest rate of 10%.)
This higher interest rate may not be very significant, but if the parties didn’t have a written contract allowing for attorney fees, the added penalty of having to pay attorney fees can be huge. In most circumstances, parties are not liable for attorney fees unless the contract between the parties states as much. Without an attorney fee provisions, many collection efforts may be too costly and risky to pursue. For instance, it doesn’t make business sense to pay an attorney more money than is available to recover, especially when recovery is not guaranteed. However, if attorney fees are also recoverable, the risks of pursuing collection are lower.
Help Recovering Interest and Unpaid Amounts
In summary, if your company has done work for, or supplied goods or services to, a general contractor or subcontractor on a construction project, but your company has not been paid in full, your company is entitled to payment, along with interest on unpaid amounts. Your company may also be entitled to enforce a lien against the property that benefitted from the work, supplies, or goods provided. There may also be other remedies to which your company is entitled.
I would love to help your company be made whole by receiving not only payment for any outstanding invoices but also additional interest and other damages and expenses, including expenses for legal work required to collect what your company is owed. I offer a free consultation. My direct dial is 801-365-1021, and you can e-mail me at [email protected].