By: Thomas S. Tripodianos Published: March 2015

Subcontractor Claims a Violation of the Prompt Payment Act (PPA)

Question.        Subcontractor claims a violation of the Prompt Payment Act (PPA). Subcontractor alleged it submitted invoices to Contractor for work that was completed, but Contractor failed to remit payment on the invoices within 30 days of their issuance, nor object to them, or advise of any reason for the non-payment. There is no record of any objections to Subcontractor's demand for payment, and invoices, and payment was not timely made.  Is Contractor in violation of the PPA?

Answer. Yes.

Subcontractor alleges a violation of New York's Prompt Payment Act (the "PPA").

Subcontractor and Contractor entered into an oral agreement whereby Contractor hired Subcontractor to perform certain work on two projects, (“Project A" and "Project B"). Subcontractor alleges that pursuant to the oral agreement, the parties did not agree to a billing cycle for the work on the projects. However, Contractor contends that the parties agreed to a bi-weekly billing cycle.

Subcontractor alleges that it submitted invoices to Contractor for the work performed as the work was completed but that Contractor failed to remit payment on all the invoices. Specifically, Subcontractor alleges that it submitted to Contractor the invoices for Project A but that Contractor failed to remit payment on the invoices within thirty days of their issuance. Additionally, Subcontractor alleges that Contractor failed to object to the invoices or advise of a reason for non-payment of the invoices, in writing, within twelve business days after the invoices were issued, and failed to approve or disapprove the invoices within twelve business days after the invoices were issued.

Subcontractor alleges that it submitted to Contractor the invoices for Project B but that Contractor failed to remit payment on the invoices within thirty days of their issuance. Subcontractor alleges that in response to receiving the Project B invoices, Contractor advised Subcontractor of an alleged discrepancy in certain invoices related only to the rates being charged for labor but that Contractor did not object to any other portion of the invoices. Subcontractor submitted revised invoices to Contractor to reflect a slight change in the rate being charged for labor on the Project B. Subcontractor alleges that Contractor did not object to, provide a reason for non-payment of or approve or disapprove the revised invoices within twelve business days after their issuance.

Contractor paid Subcontractor over $220,000 for work performed on the Project A and over $100,000 for work performed on the Project B but failed to remit payment on the remaining invoices totaling over $565,000.  

The New York State Legislature enacted the PPA in an effort to help contractors secure timely payment on private construction projects.  Pursuant to the PPA, "[t]he parties to a construction contract may, by mutual agreement, establish a billing cycle for the submission of invoices requesting payment for work performed pursuant to a construction contract. In the absence of an agreement by the parties as to the billing cycle, the billing cycle shall be the calendar month within which the work is performed." GBL §756-a(1). Additionally, pursuant to GBL §756(1), "'[c]onstruction contract' means a written or oral agreement for the construction, reconstruction, alteration…of any building, structure…and where the aggregate cost of the construction project…exceeds one hundred fifty thousand dollars." The PPA further provides that

Upon delivery of an invoice and all contractually required documentation, an owner [or contractor] shall approve or disapprove all or a portion of such invoice within twelve business days. Owner [or contractor] approval of invoices shall not be unreasonably withheld nor shall an owner [or contractor], in bad faith disapprove all or a portion of an invoice. If an owner [or contractor] declines to approve an invoice or a portion thereof, it must prepare and issue a written statement describing those items in the invoice that are not approved.

GBL §756-a(2)(a)(i).

"An owner [or contractor] may decline to approve an invoice or portion of an invoice for" reasons which include, inter alia, unsatisfactory or disputed job progress; defective construction work or material not remedied; disputed work materials; and failure to comply with other material provisions of the construction contract. Id. However, "[i]f any interim or final payment to a contractor is delayed beyond the due date established in paragraph (a) of subdivision three of seven hundred fifty-six-a of this article, the owner [or contractor] shall pay the contractor interest beginning on the next day at the rate of one percent per month or fraction of a month on the unpaid balance, or at a higher rate consistent with the construction contract." GBL §765-b(1)(a).

Contractor's assertion that it agreed to pay Subcontractor on a price per square foot basis for each project but that Subcontractor improperly invoiced Contractor on a time and materials basis and that Subcontractor inflated its time costs on the invoices is not a defense to payment of the invoices pursuant to the PPA. The PPA requires that any objections to the invoices be made within twelve business days of their receipt. See GBL §756-a. However, it is undisputed that Contractor failed to make any objections to the invoices and thus, it has now waived those objections pursuant to the PPA.

Contractor's assertion that it was not required to pay the invoices or respond to the invoices in the time frame provided by the PPA because Subcontractor did not deliver the "invoice and all contractually required documentation," as required by GBL §756-a(2)(a)(ii), is without merit. Specifically, Contractor alleges that the parties agreed that Subcontractor would supply Contractor with an executed partial waiver and release with each invoice and that it failed to do so. As an initial matter, even if such contention is true, Contractor should have objected to the invoices on that basis in the time frame provided for in the PPA. Indeed, the PPA provides that "[f]ailure to comply with…material provisions of the construction contract" is a basis for withholding approval of an invoice. GBL §756-a(2)(a)(i)(4). Moreover, Contractor has failed to establish that the waivers and releases constitute "contractually required documentation" pursuant to the PPA as it has failed to allege that such documentation was required as a condition precedent to Contractor making payments on the invoices. Indeed, even if it had made such allegation, it cannot be substantiated as it is undisputed that Contractor paid over $300,000 to Subcontractor on invoices which did not include executed partial waivers and releases. Thus, such agreement was clearly not a condition precedent to payment on the invoices and therefore, such documentation cannot be "contractually required documentation" as provided for in the PPA.

If you would like more information regarding this topic please contact Thomas S. Tripodianos at TTripodianos@wbgllp.com, or call him at 914-607-6440.

Please understand that this column provides the information only, and should not be construed as legal advice to anyone under any circumstances. The author reserves the right to modify any questions submitted so as to broaden their appeal. While we encourage you to contact us, you should not disclose to us any information that you consider confidential unless and until we have formally established an attorney-client relationship, and agreed to represent you in your particular matter. The opinions expressed in this column are of the individual author, and not necessarily those of the Hudson Valley Builders and Remodeler’s Association. Citations to legal authority have been omitted.

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