The Vermont Statutes Online
The Vermont Statutes Online have been updated to include the actions of the 2023 session of the General Assembly.
NOTE: The Vermont Statutes Online is an unofficial copy of the Vermont Statutes Annotated that is provided as a convenience.
§ 4001. Definitions
As used in this chapter:
(1) “Contractor” means a person or entity that contracts with an owner to perform work, or provide materials or machinery necessary to perform work on real property.
(2) “Work” means to build, alter, repair, or demolish any improvement on, connected with, or on or beneath the surface of any real property, or to excavate, clear, grade, fill, or landscape any real property or to construct driveways, private roadways, highways and bridges, drilled wells, septic, sewage systems, utilities, including trees and shrubbery, or to furnish materials, for any of such purposes, or to perform any labor upon real property. “Work” also includes any design or other professional or skilled services rendered by architects, engineers, land surveyors, landscape architects, and construction managers.
(3) “Owner” means a person or entity having an interest in real property on which work is performed, if the person or entity has agreed to or requested such work. “Owner” includes successors in interest of the owner and agents of the owner acting within their authority. “Owner” shall also include the State of Vermont and instrumentalities and subdivisions of the State of Vermont including municipalities and school districts having an interest in such real property.
(4) “Real property” means real estate, including lands, leaseholds, tenements and hereditaments, and improvements placed thereon.
(5) “Construction contract” means any agreement, whether written or oral, to perform work on any real property located within the State of Vermont.
(6) “Subcontractor” means any person or entity that has contracted to perform work, or provide materials or machinery necessary to perform work for a contractor or another subcontractor in connection with a construction contract.
(7) “Delivery” means receipt by addressee, including first-class, registered, or certified mail, hand delivered or transmitted by facsimile machine. Mail, properly addressed, shall be deemed delivered three days from the day it was sent.
(8) “Billing period” means the period agreed to by the parties or, in the absence of an agreement, the calendar month within which work is performed. (Added 1991, No. 74, § 1 eff. Jan. 1, 1992; amended 1993, No. 146 (Adj. Sess.), § 1.)
§ 4002. Owner’s payment obligations
(a) The owner shall pay the contractor strictly in accordance with the terms of the construction contract.
(b) In the event that the construction contract does not contain a term governing the terms of payment, the contractor shall be entitled to invoice the owner for progress payments at the end of the billing period. The contractor shall be entitled to submit a final invoice for payment in full upon completion of the agreed-upon work.
(c) Except as otherwise agreed, payment of interim and final invoices shall be due from the owner 20 days after end of billing period or 20 days after delivery of invoice, whichever is later.
(d) Except as otherwise agreed, if any progress or final payment to a contractor is delayed beyond the due date established in subsection (c) of this section, the owner shall pay the contractor interest, beginning on the 21st day, at an interest rate equal to that established by 12 V.S.A. § 2903(b), on such unpaid balance as may be due. (Added 1991, No. 74, § 1, eff. Jan. 1, 1992.)
§ 4003. Contractor’s and subcontractor’s payment obligations
(a) Performance by a subcontractor in accordance with the provisions of its contract shall entitle it to payment from the party with which it contracts.
(b) Notwithstanding any contrary agreement, a contractor or subcontractor shall disclose to a subcontractor, before a subcontract is entered, the due date for receipt of payments from the owner. Notwithstanding any other provision of this chapter, if a contractor or subcontractor fails to accurately disclose the due date to a subcontractor, the contractor or subcontractor shall be obligated to pay the subcontractor as though the 20-day due dates in subsection 4002(c) of this title were met by the owner.
(c) Notwithstanding any contrary agreement, when a subcontractor has performed in accordance with the provisions of its contract, a contractor shall pay to the subcontractor, and each subcontractor shall in turn pay to its subcontractors, the full or proportional amount received for each such subcontractor’s work and materials based on work completed or service provided under the subcontract, seven days after receipt of each progress or final payment or seven days after receipt of the subcontractor’s invoice, whichever is later.
(d) Notwithstanding any contrary agreement, if any progress or final payment to a subcontractor is delayed beyond the due date established in subsections (b) or (c) of this section, the contractor or subcontractor shall pay its subcontractor interest, beginning on the next day, at an interest rate equal to that established by 12 V.S.A. § 2903(b), on such unpaid balance as may be due. (Added 1991, No. 74, § 1, eff. Jan. 1, 1992.)
§ 4004. Errors in documentation
If an invoice is filled out incorrectly, or incompletely, or if there is any defect or impropriety in an invoice submitted, the receiving owner, contractor, or subcontractor shall contact the invoicing contractor or subcontractor in writing within ten working days of receiving the invoice. Otherwise, documentary errors shall be deemed waived. If an error on the invoice is corrected by the invoicing contractor or subcontractor, the date on which the corrected invoice is delivered shall be deemed the end of the billing period for the purposes of this chapter. (Added 1991, 74, § 1, eff. Jan. 1, 1992.)
§ 4005. Retainage
(a) If payments under a construction contract are subject to retainage, any amounts that have been retained during the performance of the contract and that are due to be released to the contractor upon final completion shall be paid within 30 days after final acceptance of the work.
(b) If an owner is not withholding retainage, a contractor or subcontractor may withhold retainage from its subcontractor in accordance with their agreement. The retainage shall be paid within 30 days after final acceptance of the work.
(c) Notwithstanding any contrary agreement, a contractor shall pay to its subcontractors, and each subcontractor shall in turn pay to its subcontractors, within seven days after receipt of the retainage, the full amount due to each such subcontractor.
(d) If an owner, contractor, or subcontractor unreasonably withholds acceptance of the work or fails to pay retainage as required by this section, the owner, contractor, or subcontractor shall be subject to the interest, penalty, and attorney’s fees provisions of sections 4002, 4003, and 4007 of this title.
(e) Notwithstanding any provision of this section or an agreement to the contrary, except in the case of a contractor or subcontractor who is both a materialman who delivers materials and is contracted to perform work using those materials, a contractor or subcontractor shall not hold retainage for contracted materials that:
(1) have been delivered by a materialman and accepted by the contractor at the site or off site; and
(2) are covered by a manufacturer’s warranty or graded to meet industry standards, or both. (Added 1991, No. 74, § 1, eff. Jan. 1, 1992; amended 2017, No. 179 (Adj. Sess.), § 3.)
§ 4005a. Fund held in trust; commingling; no effect on title to real property
(a) As used in this section:
(1) “Claim” means any valid claim for materials furnished or services rendered in the construction, repair, remodeling, improvement, or renovation of any building or structure for which the claimant has a lien or the right to claim a lien.
(2) “Express trust” means funds that have been paid by an owner, for or in connection with services, labor, or materials used in an improvement of real property, which are to be held by a contractor or subcontractor, in express trust, for those services, labor, or materials. Any such contractor or subcontractor who accepts money from any owner or contractor shall become the trustee of the express trust that is created pursuant to this section. The amounts received by such contractor or subcontractor under or in connection with each building project shall be a separate trust and the contractor or subcontractor, or any successor or assign or both of such contractor or subcontractor that hold such trust funds, shall be a trustee thereof. These funds are not required to be held in any separate account by a contractor or subcontractor. Such trust shall be effective against and shall have priority over any unsecured interest of a party seeking payment from such contractor or subcontractor for claims other than those that are due and owing by reason of the specific building project for which the trust was created, whether such creditors are foreign attachment or other judicial lien creditors, a trustee in bankruptcy, or similar creditors or representatives or creditors of the contractor or subcontractor.
(b) Funds held in express trust are not required to be held in any separate account by a contractor or subcontractor.
(c) No express trust shall be required for a federal, State, or municipal project.
(d) The amount payable to any contractor or subcontractor under any contract for the construction, repair, remodeling, improvement, or renovation of any building or structure shall, upon receipt by such contractor or subcontractor, be held in express trust by such contractor or subcontractor for the payment of all claims that are due and owing, or to become due and owing, by such contractor or subcontractor by reason of such construction, repair, remodeling, improvement, or renovation.
(e) Any amount required to be held in express trust under this section shall be applied to the payment of the corresponding claims specified in this section.
(f) Nothing in this section shall be construed to create a lien on real property. The existence of an express trust under this section shall not prohibit the filing or enforcement of a lien against the affected real property pursuant to chapter 51 of this title by any claimant. A priority lien of a secured lender shall not be subordinate to an express trust.
(g) In the case of an express trust that is not held by a corporation, limited liability partnership, or limited liability company, liability for sums due under this section shall only attach to the principal or head of the company which holds the funds under the express trust. (Added 2007, No. 211 (Adj. Sess.), § 2; amended 2021, No. 20, § 34.)
§ 4006. Prepayment; advance payment
This chapter shall in no way be construed to prohibit an owner, contractor, or subcontractor from making advance payments, progress payments, or from prepaying if agreements or other circumstances make such payments appropriate. All such payments shall be made promptly and shall be subject to the interest, penalties, and other provisions hereof when payment is later. (Added 1991, No. 74, § 1, eff. Jan. 1, 1992.)
§ 4007. Disputes; penalties; attorney’s fees
(a) Nothing in this chapter shall prevent an owner, contractor, or subcontractor from withholding payment in whole or in part under a construction contract in an amount equalling the value of any good faith claims against an invoicing contractor or subcontractor, including claims arising from unsatisfactory job progress, defective construction, disputed work, or third-party claims.
(b) If arbitration or litigation is commenced to recover payment due under the terms of this chapter and it is determined that an owner, contractor, or subcontractor has failed to comply with the payment terms of this chapter, the arbitrator or court shall award, in addition to all other damages due and as a penalty, an amount equal to one percent per month of all sums as to which payment has wrongfully been withheld. An amount shall not be deemed to have been wrongfully withheld to the extent it bears a reasonable relation to the value of any claim held in good faith by the owner, contractor, or subcontractor against which an invoicing contractor, or subcontractor is seeking to recover payment.
(c) Notwithstanding any contrary agreement, the substantially prevailing party in any proceeding to recover any payment within the scope of this chapter shall be awarded reasonable attorney’s fees in an amount to be determined by the court or arbitrator, together with expenses. (Added 1991, No. 74, § 1, eff. Jan. 1, 1992.)
§ 4008. Contracts involving federal aid
Notwithstanding any provision of this chapter, language varying the requirements of this chapter may be included in contracts when such variance is required by any statute, regulation, or grant agreement conditioning the receipt or expenditure of federal aid. (Added 1991, No. 74, § 1, eff. Jan. 1, 1992.)
§ 4009. Owner exclusion
This chapter shall not apply to contracts for the purchase of materials by a natural person performing work on his or her own real property. (Added 1991, No. 74, § 1, eff. Jan. 1, 1992.)