Construction Contract Late Payment Interest

Construction Contract Late Payment Interest: What You Need to Know

Construction projects can be costly and time-sensitive, which is why it’s essential to have a detailed contract that includes payment terms. One of the most crucial aspects of any construction contract is the late payment interest clause. In this article, we will discuss what late payment interest is, why it’s important, and how to include it in your construction contract.

What is Late Payment Interest?

Late payment interest is the amount of money charged to a client for not making a payment on time. This clause is included in many construction contracts to ensure that contractors and subcontractors receive payment for their work within a reasonable timeframe. Late payment interest is typically expressed as a percentage of the total contract value, and the amount charged varies between jurisdictions and contracts.

Why is Late Payment Interest Important?

For contractors and subcontractors, late payments can cause significant cash flow issues, which can result in the delay of work or even the inability to complete the project. Late payment interest is designed to provide some protection against this risk by incentivizing clients to pay on time. It also covers the additional costs incurred by the contractor or subcontractor for pursuing overdue payments, such as legal fees and administrative expenses.

How to Include Late Payment Interest in a Construction Contract

To include a late payment interest clause in a construction contract, you must first ensure that it complies with the laws of your jurisdiction. This may involve consulting with a legal professional or reviewing relevant legislation. Once you have established the legal framework, you can draft the clause, including the following information:

– The percentage of late payment interest charged

– The timeframe in which late payment interest will accrue

– The method of calculation

– The actions that will be taken if payment is not received

It’s essential to ensure that the late payment interest clause is clear and unambiguous, as this will help to avoid any misunderstandings or disputes later on. Both parties should sign the contract to indicate their agreement to the terms.


Late payment interest is a critical aspect of any construction contract. It provides contractors and subcontractors with some protection against late payments, which can have a significant impact on the successful completion of a project. By including a clear and accessible late payment interest clause in your construction contract, you can help to ensure that all parties are aware of their obligations and can avoid any unnecessary disputes or delays.