The Construction Contracts Act (hereinafter the “Act”) went into effect on January 14, 2003. On September 8, 2009 amendments to the Act became effective which will significantly impact the Act’s utility within the construction industry (hereinafter the “2009 Amendments”). Under the Act, all private construction contracts entered into after January 14, 2003, whether oral or written, where the aggregate amount of the construction project was $250,000.00 or more were subject to the Act. This threshold amount was reduced to $150,000.00 by the 2009 Amendments for private construction contracts entered into after September 8, 2009. Public works projects and contracts for the performance of work on public works projects will continue to be exempt from the Act’s provisions. In addition, certain residential projects and projects arising out of the events of September 11, 2001 are exempt from the Act.
The intent of the legislature in passing the Act was to prevent unjust delays in payments to contractors and subcontractors working on private construction projects. The Act establishes remedies for the benefit of contractors and subcontractors if payments are not timely made in accordance with the Act. The bulk of the Act’s original provisions could be bypassed by carefully drafted contract provisions. However, the 2009 Amendments strengthened the remedies set forth in the Act by voiding any contract provision affecting a construction contract which: (1) provides for payment provisions that are more stringent than those established in the Act or (2) bars one or both parties from the expedited arbitration remedy created by the 2009 Amendments. The rights to interest payments, to suspend performance and to have New York Law govern the obligations of the parties and designating New York as the forum for any and all disputes continue to be requirements for all contracts subject to the Act. Notwithstanding the requirements of the Act, contracts/purchase orders with material suppliers may contain provisions requiring the application of the laws of another State or venue for disputes in a jurisdiction other than New York.
The Act authorizes contractors and subcontractors to invoice for interim payments on a monthly basis. The party being invoiced, whether it is the owner, contractor or subcontractor, is required to approve or disapprove the invoice within twelve (12) business days of receipt of the invoice and all contractually required documentation, including partial waivers of lien. A party rejecting an invoice or any portion thereof must prepare a written statement outlining the item(s) which are rejected, the reasons why and
the amount(s) being withheld because of the rejection. The Act recites a list of grounds that a party may raise when rejecting an invoice or any portion thereof. The sum of the withholdings are limited to amounts sufficient to cure and/or correct the defects and capped by the line item amount in the schedule of values, if previously submitted. In essence, the withholdings must be reasonable and can be based on contract provisions such as the owner’s rights to liquidated damages if the contract is not performed on time. However, the Act also provides that delays by anyone other than the invoicing party and/or its subcontractors and material suppliers shall not be a basis for withholding approval and payment of an application for payment.
Payments are due no later than thirty (30) days from approval of an invoice or requisition. Per the 2009 Amendments, the timing for payment may no longer be altered in construction contracts covered by the Act. In situations involving subcontractors, payment is due, from the party with which it subcontracts, within seven days of that party’s receipt of good funds. Although not discussed here, the reader is also alerted to the fact that the Act contains provisions for situations when a lender is involved in financing all or part of the contract.
A contractor or subcontractor must disclose to a subcontractor of any tier the dates when payment is expected or contractually mandated from the owner or contractor. If the contractor or subcontractor fails to furnish the required notice, then it will be concluded that the due dates or time periods adopted by the Act were complied with and payment will have to be made according to these adopted dates or time periods. Additionally, upon a written request from the subcontractor and within five (5) days of the request, the owner must provide the subcontractor with written notice of making any payments to the contractor.
If payments are made beyond the due date, the party who owes the monies must pay interest at the rate of one percent (1%) per month or at a higher rate, if previously negotiated by the parties. In addition, the contractor may suspend performance without being in breach of the contract if a ten (10) day written notice is provided to the owner with an opportunity to cure, and the notice outlines the contractor’s intention to suspend performance because payments were not timely approved or made. The subcontractor has the same remedy available to it when approvals and payments are unreasonably withheld, however, it must provide the ten (10) day written notice with an opportunity to cure to both the owner and contractor. In addition to or instead of suspending performance, the subcontractor may also try to resolve the matter in compliance with the Act’s new arbitration provisions.
In the event a contractor or subcontractor suspends performance, the time frames established within the remedies section of the Act are extended for the length of the suspension. The costs incurred for re-mobilization, however, can only be collected if negotiated by the parties. The Act provides that the suspending party must be permitted a reasonable opportunity to remove its materials, equipment, tools and/or machinery from the job-site.
The 2009 Amendments authorize binding expedited arbitration between the parties to resolve alleged violations of the Act as an additional remedy. Prior to referring the matter to arbitration, the aggrieved party must provide written notice of the complaint to the party or parties in violation of the Act. Upon receipt of this written notice of complaint, the parties should attempt to resolve the matter giving rise to such complaint. If the parties cannot resolve the matter within fifteen (15) days of the receipt of the complaint, the aggrieved party may refer the matter to the American Arbitration Association for an expedited arbitration. The 2009 Amendments also explicitly prohibit any agreement collateral to or affecting a construction contract which would make these arbitration provisions unavailable to one or both parties.
Despite slight adjustments by the 2009 Amendments, the definitions enumerated in the Act remain very far-reaching, including how the terms “Construction Contract”, “Contractor”, “Subcontractor” and “Owner” are defined. The definitions, subject to the exemptions mentioned above, were intended to encompass most, if not all, contracting entities working on private construction projects greater than or equal to $250,000.00, as of January 14, 2003, or $150,000.00 for those contracts entered into after September 8, 2009. Hopefully, the legislative intent of protecting contractors and subcontractors from unscrupulous payment practices will prevail. If you would like more information on this or any other construction issue, please feel free to contact Welby, Brady & Greenblatt, LLP.
This Article is supplied for informational purposes only and is not intended to constitute legal advice. You should consult competent legal counsel depending on the specific issues of your matter.
About Anthony P. Carlucci, Jr., Esq., Attorney, Welby Brady and Greenblatt, LLP Anthony P. Carlucci, Jr. represents owners, general contractors, subcontractors, and suppliers in disputes arising from public and private construction projects. He is experienced in contract negotiations, the prosecution and defense of claims, mechanic’s liens, surety law, and alternative dispute resolution. Mr. Carlucci is an active member of the Builders and Remodelers Association of Northern New Jersey, the New York State Bar Association, the New Jersey State Bar Association and the Putnam County Bar Association. Mr. Carlucci received a Bachelor of Science Degree in Business Administration from Marist College and a Juris Doctor Degree from Pace University. He is admitted to practice law before the State and Federal Courts in New York and New Jersey.
About Ana C. Cruz, Esq., Associate, Welby Brady and Greenblatt, LLP Prior to joining Welby, Brady & Greenblatt, Ms. Cruz worked at a construction litigation firm focusing on construction and land use law. At her prior firm, Ms. Cruz represented owners, contractors, subcontractors, and suppliers in lien foreclosure and breach of contract actions.While in law school, Ms. Cruz completed four legal co-ops including a judicial internship with a federal district judge in the Southern District of New York. Her other co-ops focused on labor law, non-profit law, and general litigation. Ms. Cruz received her Bachelor of Arts degree from Boston University and her Juris Doctor degree
from Northeastern University School of Law.
About Welby, Brady & Greenblatt LLP Welby, Brady & Greenblatt LLP represents a wide range of entities within the construction and real estate industries including general contractors, subcontractors, sureties, developers, owners, suppliers, engineers, and home owners with core competencies, such as construction law and litigation, real estate development, labor law, OSHA compliance and mediation and arbitration. The firm is headquartered in White Plains, New York with offices in Cranford, New Jersey and Stamford, Connecticut. The firm’s website can be found at www.wbgllp.com.