Diana Plue, Esq. Sheats & Bailey, PLLC
On November 17, 2023, New York State amended sections of General Business Law Article 35E, known as the Prompt Payment Act, which applies to all private commercial construction projects having a value of $150,000.00 or more. This new legislation amends two sections of the Prompt Payment Act: General Business Law section 756-a and 756-c.
Section §756-a (2) of the Prompt Payment Act is amended to allow a contractor to submit a final invoice that includes retainage upon substantial completion of the contract, as defined or contemplated by the terms of the contract. This is a notable departure from the prior version of the statute, where a Contractor had to wait to submit a final invoice until the contractor performed all its obligations under the contract.
The amendment to GBL § 756-c, limits the amount of retainage that can be withheld by an owner, contractor, or subcontractor on a private construction project. Under this new legislation, the maximum amount of retainage that can be withheld on private construction projects is five percent (5%). In addition, contractors and subcontractors cannot withhold more retainage than the owner. So, if the owner does not withhold the maximum 5% in retainage, then the contractor or subcontractor cannot withhold the maximum 5% retainage. Upon receipt of retainage, a contractor or subcontractor must release a proportionate amount of retainage to the relevant down the line subcontractor. Failure to release the retainage per GBL §756-c subjects the owner, contractor, or subcontractor to pay interest at the rate of 1% per month from the date retention was due and owing until paid.
On their face these amendments dictate that the maximum amount of retainage withheld can only be 5% and that retainage can be billed before the project is fully complete. However, the opening of section 756-a states “except as otherwise provided in this article, the terms and conditions of a construction contract shall supersede the provisions of this article and govern the conduct of the parties thereto.” Section 757 of the Prompt Payment Act provides only four instances where terms of a contract are void and therefore the parties conduct is fully governed by the Prompt Payment Act, and not the contract terms. The amount of retainage withheld and the contracts definition of substantial completion are not one of the listed contract terms that are void. As such, we think there are ways with carefully constructed contract provisions to still withhold 10%.
Furthermore, the amendment to the GBL §756-a leave the definition of substantial completion to the contracting parties. Thus, the definition needs to be carefully drafted and vetted by the parties as the definition will dictate when a final invoice can be submitted and thus when final payment received.
For more information, contact Sheats & Bailey, PLLC; a law firm dedicated to serving the construction industry. Tel: (315) 676-7314
The information provided in this article is not intended to serve as specific legal advice for any particular situation. Competent legal and experienced counsel should be consulted.