Kentucky sets payment rules for state contractors and vendors

State contracts must explain payment deadlines, penalties, invoice requirements, and whether partial payments are allowed. These rules cover state agencies receiving goods or services from contractors or vendors. A confirmed amount means a good-faith, valid, accurate, timely payment request that the agency has reviewed and agreed it owes. Penalties follow contract payment terms or a 1% monthly rule. That rule has an exception under KRS 371.405 that is not explained here. Contracts may allow or prohibit partial payments. Contracts based on completed work must set milestones that must be fully met before payment. The agency pays interest penalties without reducing the contract's budget or award. The 1% penalty applies for each month or part of a month after 30 business days following receipt of goods, services, or the invoice.

State agencies must make a good-faith effort to notify contractors and vendors about rejected invoices, errors, or missing information. The correction period applies when a purchasing agency sends a contractor or vendor a rejection notice. Timely corrections do not restart the receipt date used to calculate late-payment fees. Missing the correction period makes the invoice count as a new submission for calculating those fees. Agencies must try to give notice within 15 business days of receiving goods, services, or an invoice, or follow the contract's notice terms.

Contractors and vendors may recover borrowing interest and credit costs from the purchasing agency. This covers contractors and vendors using loans, credit lines, or other financing to carry out state contracts. The agency must have reviewed the payment request and confirmed that it owes the amount. The contractor or vendor must have borrowed money to meet contract obligations and continue working. Recovery applies when payment has not arrived within 30 business days and covers borrowing interest and credit costs through the date payment is issued.

The Finance and Administration Cabinet must set up a late-payment claim process, publish instructions, and report disputes to lawmakers. Contractors and vendors can submit payment disputes to the Finance and Administration Cabinet secretary for resolution. Rules must give agencies no more than 10 days to respond. The secretary must issue a decision or written notice within 30 days of a dispute's submission. The agency must pay within five business days after a decision or notice establishes the amount due. The secretary may extend this deadline on a joint request from the contractor and agency. Reports must identify agencies involved, disputed amounts, claimed delays, and decisions. Payment rules and online claim instructions were due by October 1, 2026. Reports to lawmakers are required every six months beginning July 1, 2027.