Massachusetts Contractor Payment Laws: Prompt Pay, Retainage, and Liens

Massachusetts contractor payment laws set firm deadlines for approving and paying construction invoices, cap retainage at 5 percent, void most pay-if-paid clauses, and impose strict penalties for misclassifying workers or missing lien and reporting deadlines. The core statute is the Prompt Payment Act, M.G.L. c. 149, § 29E, but it only reaches projects with an original contract price of $3 million or more, and it excludes projects containing or designed to contain one to four dwelling units.¹ Below that threshold, your contract terms are what you have.

Which Projects the Prompt Payment Act Covers

The Act applies only when the original contract price between the owner and the prime contractor is at least $3 million, and small residential jobs of one to four dwelling units are carved out entirely. When it does apply, the timeline protections flow down through every tier of the project. Each tier below the owner can extend its approval window by an additional seven days beyond whatever applies to the tier above it.¹

The 30-15-45 Payment Clock

For covered projects, the statute sets three deadlines. A contractor’s progress payment application must be submitted within 30 days, measured from the end of the first calendar month that falls at least 14 days after work begins. The party receiving the application has 15 days to approve or reject it. Once approved, payment is due within 45 days.¹

Silence favors the contractor. If the paying party neither approves nor rejects within 15 days, the invoice is deemed approved and the 45-day payment clock starts running automatically.¹

A rejection cannot be a one-word denial. It must be in writing, explain the factual and contractual basis for the rejection, and be certified as made in good faith.¹ Written communications under the Act may be delivered electronically, so email invoices and digital approvals count as long as they meet the contract’s requirements.

Retainage Cap and Release

On private construction projects, Massachusetts caps retainage at 5 percent of any progress payment. No contract can require more.²

Release runs on a strict schedule. Within 14 days of reaching substantial completion, the prime contractor must submit a formal notice of substantial completion to the owner. The owner has 14 days to accept or reject it. If the owner does nothing, the notice is deemed accepted, and the date the contractor listed becomes the official substantial completion date, binding on the owner and all successors.²

After acceptance, the owner has 14 days to deliver a written punch list. The prime contractor then has 21 days to pass similar lists to any subcontractors from whom it withholds retainage. Once the listed work is done, retainage must be released. A rejection of the substantial completion notice must include specific factual and contractual reasons and a good-faith certification, with the dispute proceeding under whatever resolution mechanism the contract provides.²

Pay-If-Paid Clauses Are Void

Section 29E voids any construction contract clause that conditions a subcontractor’s right to payment on whether the general contractor has been paid by the owner.¹ Many states still enforce these clauses, which push the risk of owner nonpayment onto the subcontractor who did the work. Massachusetts does not.

Two narrow exceptions exist. One applies when the owner has not paid because the subcontractor failed to perform and did not cure after written notice. The other applies when the owner becomes insolvent within 90 days of the payment request. Even then, the party trying to enforce the condition must have properly filed a notice of contract under Chapter 254, must pursue lien rights within the allowed deadlines, and must exhaust all reasonable legal remedies against the party it contracted with directly. The burden of proof falls on whoever is trying to withhold payment.¹

Pay-when-paid clauses, which treat the owner’s payment as a timing mechanism rather than a condition, are generally permissible. Courts will not enforce them if they force the subcontractor to wait an unreasonable length of time.

Worker Classification: The ABC Test

Massachusetts applies one of the strictest classification standards in the country. Under M.G.L. c. 149, § 148B, every worker is presumed to be an employee unless the hiring party can prove all three of the following:

The worker is free from the hiring party’s control and direction in performing the service, both under the contract and in practice.
The service is performed outside the usual course of the hiring party’s business.
The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work being performed.

All three prongs must be satisfied.³ Failing even one means the worker is an employee under Massachusetts law, no matter what the contract says. The second prong is where construction relationships often break down: if a general contractor hires a carpenter to do carpentry, that work is arguably within the GC’s usual business, which can defeat the classification even when the carpenter runs a separate operation.

The stakes are high. A misclassified worker can recover up to three times the wages and benefits they would have earned as a properly classified employee, plus attorney’s fees, with a three-year lookback. Whether the hiring party withheld income taxes or paid workers’ compensation is irrelevant to the analysis; the statute says those factors cannot be considered.³

Mechanic’s Liens

When payment does not arrive, a mechanic’s lien is the strongest tool a contractor has. Under M.G.L. c. 254, a contractor or subcontractor who performs labor or supplies materials for a project can file a lien against the property, creating a security interest in the real estate. The owner cannot sell or refinance cleanly until the lien is resolved.⁴

The deadlines are unforgiving. A lien statement generally must be filed within 90 days of the last day work was performed or materials delivered. A suit to enforce the lien must be commenced within 90 days after filing. Miss either and the lien is gone. The lien itself covers up to 30 days’ worth of labor actually performed during the 90 days before filing.⁴

Subcontractors without a direct contract with the owner face extra steps. They typically must file a notice of contract or a notice of identification before their lien rights can be preserved. Skipping those steps is fatal to the claim.

Conditional vs. Unconditional Lien Waivers

Lien waivers appear in nearly every progress payment cycle, and confusing the two types can be costly. A conditional waiver only takes effect once payment is actually received. If the check bounces, lien rights survive. An unconditional waiver takes effect the moment it is signed, regardless of whether the money ever arrives. Sign conditional waivers when exchanging them for payment, and sign an unconditional waiver only after funds have cleared. A final unconditional waiver represents your statement that every dollar owed on the project has been received; premature signing gives up all lien rights with no way back.

Prevailing Wage on Public Projects

Contractors working on public construction projects in Massachusetts must pay covered workers the prevailing wage rate set by the Department of Labor Standards. It applies whether the workers are employed by the general contractor, a filed sub-bidder, or any subcontractor at any tier. The project-specific rate schedule must be posted visibly at the site.⁵

Compliance is documentation-heavy. Contractors must submit certified payroll records weekly to the awarding authority and keep copies for three years. Each report needs the worker’s name, address, job classification, hours, and wages, along with a signed Statement of Compliance. On public projects estimated over $10,000, every covered worker must have completed OSHA 10-hour safety training and carry documentation on-site.⁵

Only specific deductions from the prevailing wage total rate are allowed: contributions to bona fide health and welfare, pension, and supplemental unemployment plans. Deductions for vacation time, training funds, workers’ compensation insurance, or uniforms are prohibited, even where federal law would allow them.⁵

Payment Bonds on Federal Projects

Federal work in Massachusetts adds another layer of protection. Under the Miller Act, any federal construction contract exceeding $100,000 requires the prime contractor to post a performance bond and a payment bond before work begins.⁶ The payment bond protects subcontractors and suppliers who provide labor or materials but have no direct contract with the federal government.

A first-tier subcontractor working directly under the prime contractor who has not been paid in full within 90 days after the last day of work or material delivery can sue on the bond in federal district court without prior notice to the prime. A second-tier subcontractor, working under a first-tier sub with no direct link to the prime, must send written notice of the claim to the prime contractor within 90 days of furnishing the last labor or materials. Either way, suit must be filed no later than one year after the last work or delivery.⁷

1099-NEC Reporting and Backup Withholding

Any business paying an independent contractor $600 or more during the tax year must file Form 1099-NEC with the IRS and send a copy to the contractor. Both deadlines fall on January 31 of the following year.⁸ Electronic filing with the IRS extends the IRS deadline to March 31, but the contractor’s copy is still due January 31.⁹

Before the first payment, collect a completed Form W-9 from every contractor. If a contractor fails to provide a valid taxpayer identification number, the hiring party must withhold 24 percent of each payment and remit it to the IRS as backup withholding.¹⁰ That comes off the top regardless of the contractor’s actual tax bracket.

Interest, Litigation, and Alternative Dispute Resolution

When a paying party misses a Prompt Payment Act deadline, the contractor is entitled to interest on the overdue amount. The Act requires that the contract specify the applicable interest rate, and Massachusetts courts may also apply the state’s statutory prejudgment interest rate in contract actions, so leaving the rate ambiguous invites litigation over which one applies.¹ The good-faith certification required for any rejection means that bad-faith rejections designed to delay payment can expose the rejecting party to additional liability. Combining a payment claim with a mechanic’s lien action increases leverage in settlement.

Litigation is always available, but most well-drafted construction contracts point disputes toward mediation or arbitration first. Mediation is non-binding and cheaper than court. Arbitration is more formal. Under the Massachusetts Uniform Arbitration Act for Commercial Disputes, M.G.L. c. 251, arbitration agreements are enforceable, and the resulting award can be confirmed by a court and turned into a judgment.¹¹ The Act provides for court-appointed arbitrators when the parties cannot agree, subpoena power for witnesses and documents, and limited grounds for vacating or modifying an award. Arbitration decisions are hard to overturn on appeal, which makes the choice of arbitrator one of the most consequential decisions in the process. A contract that sends “all disputes” to binding arbitration also waives the right to a jury trial on those claims.

1
General Court of Massachusetts. Massachusetts Code Part I – Title XXI – Chapter 149 – Section 29E
2
General Court of Massachusetts. Massachusetts Code Part I – Title XXI – Chapter 149 – Section 29F
3
General Court of Massachusetts. Massachusetts Code Part I – Title XXI – Chapter 149 – Section 148B
4
General Court of Massachusetts. Massachusetts Code Part III – Title IV – Chapter 254 – Section 1
5
Mass.gov. Prevailing Wage for Contractors
6
GovInfo. 40 USC 3131 – Bonds
7
U.S. General Services Administration. The Miller Act
8
IRS. Instructions for Forms 1099-MISC and 1099-NEC
9
IRS. Publication 1099 General Instructions for Certain Information Returns
10
IRS. Publication 15 (2026), Circular E, Employer’s Tax Guide
11
General Court of Massachusetts. Chapter 251 – Uniform Arbitration Act for Commercial Disputes