Under North Carolina's payments-to-subcontractors law, how is a 'contractor' defined?
Based on: NCGS 22C-1 (Definitions)
NC Contractor Business & Law Exam · Subcontractor Pay
NC Subcontractor Payment: The Seven-Day Rule and Pay-If-Paid (2026)
North Carolina requires payment to flow down the construction chain quickly. On private jobs, Chapter 22C sets the rules: once a subcontractor performs, the party above it must pass along the money within seven days of being paid, under NCGS 22C-3. A pay-if-paid clause that makes payment to a lower tier depend on the owner first paying up the chain is unenforceable under NCGS 22C-2. Public projects follow their own prompt-payment rules in NCGS 143-134.1. Read the general statutes free at ncleg.gov alongside Chapters 22C and 143.
Practice
Free practice questions
How does Chapter 22C define a 'subcontractor'?
Based on: NCGS 22C-1 (Definitions)
Under Chapter 22C, an 'owner' is a person who has an interest in the improved real property, for whom the improvement is made, and who ordered it made. Whom else does the term 'owner' include?
Based on: NCGS 22C-1 (Definitions)
For purposes of Chapter 22C, which of these is a person who has an interest in the real property improved, for whom the improvement is made, and who ordered the improvement to be made?
Based on: NCGS 22C-1 (Definitions)
Under the Chapter 22C definition of 'improve,' which of the following activities is included?
Based on: NCGS 22C-1 (Definitions)
Under Chapter 22C's definition of 'improve,' professional or skilled services furnished by which registered professionals are included?
Based on: NCGS 22C-1 (Definitions)
How does Chapter 22C define 'real property'?
Based on: NCGS 22C-1 (Definitions)
Under Chapter 22C, what entitles a subcontractor to payment from the party with whom it contracts?
Based on: NCGS 22C-2 (Performance by subcontractor)
Under Chapter 22C, is payment by the owner to the contractor a condition precedent for the contractor's duty to pay a subcontractor?
Based on: NCGS 22C-2 (Performance by subcontractor)
A subcontract contains a clause stating that a lower-tier subcontractor need not be paid unless the general contractor first pays the higher-tier subcontractor. Under Chapter 22C, what is the effect of such an agreement?
Based on: NCGS 22C-2 (Performance by subcontractor)
Who is covered, and the definitions that decide it
Chapter 22C defines its terms in NCGS 22C-1, and they track the lien law closely. A contractor is a person who contracts with an owner to improve real property. A subcontractor is anyone who has contracted to furnish labour or materials to, or has performed labour for, a contractor or another subcontractor in connection with a contract to improve real property, so the definition reaches down every tier. An owner is a person who has an interest in the improved property, for whom the improvement is made, and who ordered it, and the term expressly includes successors in interest and authorised agents. The definition of improve is broad and includes excavating, clearing, grading, filling and landscaping, as well as the professional services of architects, engineers, land surveyors and landscape architects registered under Chapters 83A, 89C or 89A. Real property means the real estate improved, including lands, leaseholds, tenements and hereditaments and the improvements on them. Because Chapter 22C uses the same building blocks as the lien statute, learning them once serves both topics on the exam.
The seven-day rule and unenforceable clauses
The operative rule is timing. Under NCGS 22C-3, when a contractor or subcontractor receives a periodic or final payment, it must pay its own subcontractor within seven days of receipt, and it must pay the full amount received for that subcontractor's work and materials based on the work completed. The duty runs down every tier: the contractor pays its subcontractor, and each subcontractor pays its own subcontractor, all on the same seven-day clock. NCGS 22C-2 then removes the classic excuses for holding money. Payment by the owner to the contractor is not a condition precedent to the contractor paying a subcontractor, and payment by a contractor to one subcontractor is not a condition precedent to paying any other. A clause that tries to make one party's payment a condition precedent to another's, the pay-if-paid clause, is unenforceable. What performance earns is set by NCGS 22C-2 as well: performance by the subcontractor in accordance with its contract is what entitles it to payment from the party it contracted with.
- Pay a subcontractor within seven days of receiving payment (NCGS 22C-3).
- Owner payment to the contractor is not a condition precedent (NCGS 22C-2).
- A pay-if-paid clause making payment a condition precedent is unenforceable (NCGS 22C-2).
When you may withhold, interest and public jobs
Fast payment is not blind payment. NCGS 22C-4 lets a contractor withhold, at the time of its application and certification to the owner, for enumerated good-cause reasons. The statute lists grounds such as unsatisfactory job progress and defective construction that has not been remedied, among other legitimate reasons, so a contractor can protect itself when a subcontractor's work is genuinely deficient. If payment is late without a good-cause basis, NCGS 22C-5 makes the late amount bear interest, and NCGS 22C-6 sets when the chapter applies. Public projects are governed separately. Contracts for public buildings and public work fall under Article 8 of Chapter 143, where NCGS 143-134 and the prompt-payment provisions of NCGS 143-134.1 impose their own periodic and final payment duties and interest on late payment for State and local government jobs. The two regimes are easy to mix up, so the exam expects you to know that Chapter 22C is the private-project prompt-payment law while NCGS 143-134.1 is its public-project counterpart.
| Point | Private projects (Ch 22C) | Public projects (NCGS 143-134.1) |
|---|---|---|
| Governing chapter | Chapter 22C | Chapter 143, Article 8 |
| Pass payment down within | Seven days of receipt (NCGS 22C-3) | The prompt-payment period set by NCGS 143-134.1 |
| Pay-if-paid clause | Unenforceable (NCGS 22C-2) | Governed by the public-contract rules |
| Interest on late payment | Yes (NCGS 22C-5) | Yes, under NCGS 143-134.1 |
| Grounds to withhold | Good-cause reasons (NCGS 22C-4) | As allowed by the public-contract statute |
FAQ
Frequently asked questions
How quickly must a contractor pay a subcontractor in North Carolina?
In North Carolina, NCGS 22C-3 requires a contractor or subcontractor to pay its own subcontractor within seven days of receiving each periodic or final payment. It must pay the full amount received for that subcontractor's work and materials, and the same seven-day duty runs down every tier of the project.
Are pay-if-paid clauses enforceable in North Carolina?
In North Carolina, NCGS 22C-2 makes a pay-if-paid clause unenforceable when it tries to make one party's payment a condition precedent to another's. Payment by the owner to the contractor is not a condition precedent to paying a subcontractor, and payment to one subcontractor is not a condition precedent to paying any other.
When can a North Carolina contractor withhold payment from a subcontractor?
In North Carolina, NCGS 22C-4 lets a contractor withhold, at the time of its application and certification to the owner, for enumerated good-cause reasons. The listed grounds include unsatisfactory job progress and defective construction that has not been remedied, so a contractor can hold money when a subcontractor's work is genuinely deficient.
Does late payment to a subcontractor earn interest in North Carolina?
In North Carolina, NCGS 22C-5 provides that a late payment to a subcontractor bears interest. Combined with the seven-day payment window in NCGS 22C-3 and the ban on pay-if-paid clauses in NCGS 22C-2, the interest rule gives a subcontractor a financial remedy when a higher tier holds money without a good-cause reason under NCGS 22C-4.
What law covers subcontractor payment on public projects in North Carolina?
In North Carolina, public building and public work contracts fall under Article 8 of Chapter 143, where NCGS 143-134 and the prompt-payment provisions of NCGS 143-134.1 set the periodic and final payment duties and interest for State and local government jobs. Private projects instead follow the seven-day interim payment rules of Chapter 22C.