In 2007, then-governor Ernie Fletcher of Kentucky signed the Kentucky Fairness in Construction Act into law. The goal of the legislation was to “level the playing field,” as legislators put it, between owners and contractors. It has had wide-reaching effects on the construction industry in several specific areas. Therefore, all owners and contractors must be aware of the law when entering into any agreement.
These are some examples of the law’s effects.
The act requires owners to issue prompt payment to contractors, usually within 30 business days after the completion of a timely, undisputed payment request or within 45 days if the owner in question is a postsecondary educational institution. Any payments made beyond that 30-day window are subject to a 12 percent interest fee.
If a payment is not made after 25 days, the contractor has the responsibility to notify the owner of the upcoming deadline by certified mail. The notification should include the date at which the interest will begin to apply.
The act automatically invalidates some contract provisions, such as the waiver of the rights to litigate, to delay damages against the owner and to file a mechanic’s lien. Any such provisions included in construction contracts since the law was implemented may no longer be enforced. All contract provisions are now automatically severable under the act, which means a single provision that’s invalid does not invalidate the rest of the contract.
The act placed limits on the amount of retainage that can be legally withheld. For example, if less than half the project is finished, only 10 percent of the value of the contract may be retained. Retainage must be released 30 days after the “substantial completion” of the project in question.
If the parties are engaged in a dispute, the prevailing parties may recover attorney’s fees and other costs if the adverse party is found to have acted in bad faith. For public contracts, however, the standard contract rules regarding attorney fees apply.