Colorado Prompt Payment Act for Construction

Colorado's Prompt Payment Act establishes legally enforceable deadlines for releasing funds on both public and private construction projects, creating a structured payment chain from owner through general contractor to subcontractors and suppliers. This page covers the statute's scope under Colorado Revised Statutes Title 38, the payment timelines at each tier, and the penalties that attach when deadlines are missed. Understanding this framework is essential context for anyone navigating Colorado construction contract essentials or resolving disputes along the payment chain.

Definition and scope

The Colorado Prompt Payment Act is codified primarily at C.R.S. § 38-26-107 (public projects) and C.R.S. § 38-26-117 through § 38-26-120 (private projects), with supplemental provisions governing interest penalties under Title 24 for state-funded work. The statute governs the timing of payment releases and assigns a mandatory interest penalty — set at rates that vary by region per annum (C.R.S. § 38-26-107) — on overdue amounts for public construction contracts.

Scope — what is covered:

• Public construction contracts let by state agencies, counties, municipalities, and special districts
• Private commercial construction projects above statutory thresholds involving an owner, prime contractor, and at least one subcontractor tier
• Contracts for labor, materials, and equipment incorporated into a Colorado-sited improvement

Scope — what is not covered:

The Act does not apply to residential projects governed solely by the Colorado Consumer Protection Act under C.R.S. § 6-1-105, nor does it govern federal construction contracts on federally owned land, which fall under the federal Prompt Payment Act (31 U.S.C. § 3901–3907) administered by the U.S. Department of the Treasury. Owner-builder projects without a prime contractor tier and contracts for design-only services also fall outside the statute's coverage. Disputes arising under Colorado construction lien law follow parallel but distinct procedural tracks under C.R.S. § 38-22-101 et seq.

How it works

The payment process under the Act operates as a tiered cascade: the owner pays the prime contractor, who pays subcontractors, who pay sub-subcontractors and material suppliers. Each tier carries its own deadline clock that begins running on a defined trigger event — typically the submission of a payment application that complies with contract requirements.

Payment timelines — public projects (C.R.S. § 38-26-107):

1. Owner to prime contractor — The public entity must release undisputed funds within 15 days after the payment application is approved by the architect or project engineer.
2. Prime contractor to subcontractor — After receiving payment from the owner, the prime contractor must pay each subcontractor for work covered by that payment within 7 days.
3. Subcontractor to sub-subcontractor — Each downstream subcontractor must pass funds through within 7 days of receipt.
4. Penalty trigger — Amounts not paid within statutory deadlines accrue interest at rates that vary by region per annum, calculated from the date payment was due.

Payment timelines — private projects (C.R.S. § 38-26-117 through § 38-26-120):

On private commercial projects, the owner-to-prime deadline is typically governed by contract, but the Act sets a default of 21 days from the date a payment application is received if no contract term specifies otherwise. The prime-to-subcontractor pass-through obligation mirrors the public project structure: payment must flow within 7 days of the prime's receipt. A retainage cap of rates that vary by region applies once a project is rates that vary by region complete (C.R.S. § 38-26-119), reducing the amount a prime contractor may withhold from subcontractors.

Dispute and withholding provisions:

An owner or prime contractor may withhold payment for a specific, documented reason — such as defective work, a third-party claim, or a contractual backcharge. However, withholding is limited to the disputed amount; undisputed portions must be released on the statutory schedule. Blanket withholding without itemized justification does not constitute a defense against the interest penalty.

Common scenarios

Scenario 1 — Public project, late approval: A state agency withholds approval of a payment application for 30 days without identifying a specific deficiency. The prime contractor's undisputed amount accrues interest at rates that vary by region per annum from day 16, enforceable by the contractor without filing suit as a predicate.

Scenario 2 — Private project, retainage dispute: A general contractor holds rates that vary by region retainage on a subcontractor whose scope is rates that vary by region complete. Under C.R.S. § 38-26-119, that rate must be reduced to rates that vary by region at the rates that vary by region completion milestone. Failure to reduce exposes the prime to interest liability on the excess withheld amount.

Scenario 3 — Pay-when-paid clauses: Some prime contracts include "pay-when-paid" language conditioning subcontractor payment on the prime's own receipt of funds. Colorado courts have interpreted such clauses as creating a timing mechanism rather than a risk-shifting device — meaning the clause delays but does not eliminate the obligation to pay. This distinction matters for subcontractors evaluating Colorado construction dispute resolution options.

Scenario 4 — Colorado Department of Transportation (CDOT) projects: Contracts administered through CDOT must conform to the public project prompt payment provisions, and CDOT's Standard Special Provisions incorporate interest penalty requirements consistent with C.R.S. § 38-26-107. Contractor prequalification through CDOT's prequalification program does not alter the payment timeline obligations.

Decision boundaries

Public vs. private project — key distinctions:

When the Act applies vs. when it does not:

The Act applies when a construction contract is let for work on a Colorado-sited improvement, the contract involves at least two tiers of the payment chain, and the owner is either a public entity or a private party engaged in commercial construction. The Act does not apply when the project is federally funded under a direct federal contract, when the contracting party is a residential consumer on a single-family dwelling, or when the work is purely design or consulting services not incorporated into a physical improvement.

Interaction with lien rights:

The Prompt Payment Act and the Colorado mechanics lien statute operate independently. A subcontractor may simultaneously pursue interest under the Prompt Payment Act and record a lien under C.R.S. § 38-22-101. The lien deadline clock — generally 4 months from the last date of work for commercial projects — runs independently of any Prompt Payment Act interest claim. Prevailing wage requirements on public projects, addressed separately under Colorado prevailing wage construction, do not extend or modify the prompt payment deadlines, though they add an additional compliance layer on covered public work.

Permitting and project closeout intersection:

Payment applications tied to substantial completion or final completion milestones often reference the issuance of a certificate of occupancy. The timing of that certificate — governed through the local building department and addressed under Colorado's certificate of occupancy process — can directly affect when a payment application is deemed complete and the statutory deadline clock begins. Delays in permit inspections that postpone certificate issuance may shift the trigger date for final payment, which is a documented source of payment chain disputes on commercial projects across the state.

References

• Colorado Revised Statutes Title 38 — Property — Real and Personal (C.R.S. § 38-26-107; § 38-26-117 through § 38-26-120)
• Colorado Revised Statutes Title 6 — Consumer and Commercial Affairs (C.R.S. § 6-1-105 — Colorado Consumer Protection Act)
• Colorado Department of Transportation (CDOT) — Standard Special Provisions
• Colorado General Assembly — Legislative Council Staff, Fiscal Notes and Statutory Text
• U.S. Department of the Treasury — Federal Prompt Payment Act (31 U.S.C. § 3901–3907)
• [Colorado Office of Administrative Courts](https://www.colorado.gov/