An association representing general contractors and other construction businesses in Minnesota is spearheading a legislative effort designed to make it easier for small businesses to participate in large construction projects.
The Associated General Contractors of Minnesota developed the “prompt payment” program, which is part of the association’s 2025 legislative agenda. In a nutshell, the program would enable approved small businesses to receive “direct, partial payments from owners in a timely manner,” according to the association.
The program addresses a longstanding concern for small businesses and lower-tier contractors — the ability to cash flow their way through projects that may take years to complete.
As payments trickle down from the owner to the prime contractor to the subcontractors, lower-tier subs, including small businesses, are last in line to get paid. In the meantime, AGC notes, the small businesses are required to pay upfront for supplies and labor costs.
“The time between receiving payments and making payments creates a cash flow challenge that hinders many small, minority, and startup businesses,” according to AGC-Minnesota.
“This is a key issue for them because of the difficulty with cash flows, especially if the smaller businesses are coming in earlier in a project and the project doesn’t close out for quite some time,” Laura Ziegler, AGC-Minnesota’s director of Highway/Heavy & Government Affairs, said in an interview. “That can present a number of issues.”
Ziegler said the program is a new addition to the association’s 2025 legislative agenda. Details are still being worked out in the legislative space, but Ziegler said the association has long been having conversations with owners and other stakeholders about the issue.
“At times, some upper-tier contractors or GCs will assist with those payments. But that is not always possible, so we need the owner to recognize that and help us get at the uniqueness of the industry and how that works,” Ziegler said. “We look forward to furthering those conversations with project owners and working through that.”
Ziegler noted that AGC-Minnesota’s contracts committee developed an addendum to its form contracts that owners can adopt to assist with this type of program.
“This [legislative effort] is really another way to move the conversation forward … and demonstrate that it is a priority of ours to keep our Small Business Enterprises viable and strong in the state of Minnesota,” she said.
Other industry groups on board with the effort include the Association of Women Contractors, a St. Paul-based trade association representing women business owners in the construction industry.
“The program AGC developed is welcome for small businesses and if utilized could ensure a better level of success on the project,” Barb Lau, executive director of the Association of Women Contractors, said in an email. “Cash flow is one of the top barriers faced by small businesses. They don’t have the cash reserves to finance labor, supplies, union dues, and more on a project for up to three months while waiting to get paid. This can lead to incurring additional costs that can’t be billed, including interest on lines of credit.
“In my years of working in this industry, we have sought out solutions to this issue, especially in the public contracting arena where the payment delays are most egregious. While we have seen policy language requiring the general contractors to pay subcontractors on a schedule after they receive payment, it doesn’t kick in until the general contractor gets paid by the owner.”
The 2025 legislative session begins Jan. 14. Though the prompt payment program is still in its formative stages, and lawmakers will have their hands full in a budget year, Ziegler believes the program could get support on both sides of the political aisle if and when a bill is introduced.
“I think the appetite to make our businesses strong, especially at this level, always gains traction at the Legislature. … We really want to continue the dialogue with our with our partners and see where it goes,” Ziegler said.
Founded in 1919, AGC-Minnesota has about 400 members and provides services such as labor relations, education, training, and advocacy for the state’s construction industry.
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