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By
Richard P. Dyer
Thelen Reid Brown Raysman & Steiner LLP
Strong
lobbying efforts by the carpenter and the drywall contractors
resulted in passage and signing of legislation to require
prompt payment for construction work on private projects
in New York. While Gov. Pataki vetoed legislation on the
same subject last year, he signed this year's legislation
(Senate Bill S7724-A) on July 18, 2002, as Chapter 127 of
the Laws of 2002. The bill is codified at General Business Law Article 35-E, §§756, et seq. It can be viewed at assembly.state.ny.us/leg/?cl=44&a=94.
The
bill becomes effective 180 days after signing. It will apply
to all contracts entered into on or after January 13, 2003,
unless the construction contract is part of a construction
project for which a permit or permits were issued and work
was begun before January 13, 2003.
The
bill does not apply to: public projects; projects with a
value of less than $250,000; one-, two- or three-unit residential
dwellings; residential tract projects of 150 units or less
or of 9,000 square feet or less; and reconstruction of lower
Manhattan.
The
official bill summary states that the legislation "establishes
provisions requiring the prompt payment of all parties performing
work pursuant to a construction contract; construction contract
shall include all contracts providing for the construction,
alteration, repair, maintenance, moving or demolition of
a building or structure, and the development or improvement
to land; provides for the payment of progress payments on
contracts with a duration in excess of 60 days;... requires
the prompt payment of subcontractors and material suppliers;
authorizes, upon written notice, withholding payment when
work is not performed in a satisfactory manner only until
defects are corrected; provides for the suspension or termination
of such contracts and damages arising therefrom; prohibits
provisions in construction contracts providing for the application
of the law of another jurisdiction to such contract, or
waiving any provision of this legislation."
One
significant provision of the bill bars contract terms that
prohibit suspension of work for non-payment.
While
it appears that the intent of the Legislature was to limit
the bill's reach to projects located in New York State,
the statutory provisions do not expressly so provide.
Parties
still may be free to contract as they desire on most payment
provisions, as the bill provides that "except as otherwise
provided" the terms of a construction contract shall
supersede the provisions of the bill and govern the conduct
of the parties. The bill does expressly provide otherwise
in voiding provisions that make the contract subject to
the law of another state, require dispute resolution in
another state or prohibit suspension of performance in the
event of failure of payment.
The
new law forbids withholding payments in bad faith but allows
them to be withheld until remedied for defective work, late
work, disputed work, failure to comply with the contract
and failure to pay bills, wages, benefits or taxes. It requires
a written statement describing disputed items when funds
are withheld. The new law provides benefits to general contractors,
subcontractors and suppliers. It extends the time of performance
of the contract by the length of the time performance is
properly suspended for late payment. And, it provides for
interest of 1 percent a month on late payments.
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For more information about the issues covered in this report, please contact Richard P. Dyer in our New York office at 212-895-2117 or at rpdyer@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2002 Thelen Reid Brown Raysman & Steiner LLP
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