Introduction
On November 17, 2023, amendments to New York’s Prompt Payment Act (the “Act”) were signed into law by Governor Kathy Hochul and effective immediately. The amendments apply to all private construction contracts where the contract sum exceeds $150,000.
Background on Act
The Act applies to all construction contracts exceeding $150,000 and renders void and unenforceable any contract provisions inconsistent with the Act. N.Y. Gen. Bus. Law §§756, 757.
The Act allows the owner to withhold a “reasonable amount” of the contract sum as retainage and requires the release of the retainage to the contractor no later than 30 days after “the final approval of the work under a construction contract.” N.Y. Gen. Bus. Law §756-c.
The Amendments
The amendments to the Act include two important changes. The first significant change is the amendment to §756-c of the Act, which limits owners’ retainage to no more than 5 percent of the contract sum, in contrast to the prior law that permitted the owner to retain a “reasonable amount” of the contract sum as retainage. N.Y. Gen. Bus. Law §756-c. The 5 percent retainage limitation includes a penalty for all violations by assessing interest in the amount of 1 percent per month starting on the day the retention came due. However, the remainder of §756-c remains unchanged, and the project owner is still required to release the retainage to the contractor within 30 days after final approval.
The second notable change to the Act is the amendment to §756-a, which now provides that contractors may submit “a final invoice for payment in full upon reaching substantial completion, as such term is defined in the contract or as it is contemplated by the terms of the contract.” N.Y. Gen. Bus. Law §756-a (emphasis added). The contractor’s final invoice is where the contractor seeks full payment of all contract balances, including the release of retainage. This amendment changes the original version of the Act, which stated the contractor was entitled to submit a final bill and seek release of retainage only “upon the final approval of the work under a construction contract.” N.Y. Gen Bus. Law §756-a(2)(a)(i) (emphasis added).
Conclusion
The amendments to New York’s Prompt Payment Act have the potential to significantly impact all contractors operating under private construction contracts in New York. All contractors that conduct business in New York should be aware of these amendments to ensure compliance with the Prompt Payment Act, as well as be aware of your respective rights.
Should you have any questions about the above-amendments, please contact: Edward A. Velky at evelky@bressler.com and Daniel P. Murray at dmurray@bressler.com.