By: WBG, LLP Published: March 2009

Amendments to The New York City School Construction Authority Act Allow Subcontractors to Elect a Remedy for Nonpayment

I. Background  

Section 101 of the General Municipal Law, also known as the Wicks Law, sets forth requirements for public construction contracts.  The Wicks Law requires public works owners to prepare separate specifications and award separate contracts for general construction, plumbing, HVAC, and electrical work when the total value of the contract exceeds three million dollars for public construction within New York City.  

The Wicks Law provision was preempted by Section 1735 of the New York City School Construction Authority Act (“Act”) for contracts awarded by the New York City School Construction Authority (“Authority”) between July 1, 1989 and June 13, 2014.  Unlike Wicks Law contracts, the Authority can award one contract.  Contractors submitting bids with the Authority during this time period must identify the names of the subcontractors they intend to use for the performance of the plumbing, HVAC, and electrical work.    

Contracts that come within the Act are also subject to its payment protection clause.  Under Subsection Six of the Act, contractors are required to pay subcontractors within seven (7) days of receiving payment from the Authority.  The contractors must pay their subcontractors the portion of the proceeds of the payment they receive representing the value of the work performed by their subcontractors which has been approved and paid for by the Authority.  Contractors may hold back an amount necessary to satisfy any claims, liens or judgments against the subcontractor which have not been suitably discharged and they may hold retainage.  Retainage is set at either five or ten percent depending on whether the subcontractor has posted a performance and/or a labor and material payment bond.   

If a subcontractor notifies the contractor and the Authority that the contractor failed to make a required payment, the contractor must provide the Authority with either proof of the payment to the subcontractor or a notice that the amount claimed by the subcontractor is in dispute.  The contractor must do so within five (5) calendar days of receiving the notice of nonpayment from the subcontractor.  If the contractor fails to respond to the subcontractor’s notice or notifies the Authority that the payment to the subcontractor is in dispute, the Authority withholds money from the contractor’s payment.  If the contractor disputes the payment owed to the subcontractor, the Authority deposits the amount withheld into an interest bearing account.  Any amounts owed together with interest will be paid to the party ultimately determined to be entitled to payment.  The Act also contains provisions for determining priority and distribution of amounts withheld in the event of multiple withholdings.  

Amendments to the Act became effective on September 17, 2010 (“Amendments”).  The purpose of the Amendments the Amendments will significantly impact the amounts withheld from contractors by the Authority, contractors’ ability to bond the payment amounts disputed by subcontractors, and subcontractors’ remedies for payment protection.   

Pursuant to the Amendments, the Authority will now withhold one hundred fifty percent (150%) of the portion of the Authority’s prior payment to the contractor which the subcontractor claims to be due from the contractor.  Notably, the amendment does not alter that portion of the statute that provides that if the contractor fails to dispute the withholding the Authority will remit the amount withheld (i.e. the 150%) to the subcontractor and deduct such payment from the amounts then otherwise due and payable to the contractor.  Such payments by the Authority are deemed a payment by the Authority to the contractor. Prior to the Amendments, the Authority held an amount equal to the prior payment to the contractor which the subcontractor claimed to be due from the contractor.  

To avoid the Authority’s one hundred fifty percent (150%) withholding, the contractor can file a bond or undertaking in the amount(s) withheld by the Authority.  This remedy was added by the Amendments and is new to the Act.  

The Act was also modified so that subcontractors must now choose between filing a lien or seeking payment protection from the Authority under the one hundred fifty percent withholding clause of Section 1735.  Going forward, a subcontractor can file a lien for the amount disputed in the event the Authority does not withhold the required amounts within sixty (60) days after the Authority’s receipt of written notification from the subcontractor of the contrator’s failure to make a payment.  Significantly, such a lien will be the subcontractor’s sole remedy in lieu of the remedies provided by the Act.  This election of remedies clause was added to avoid the financial burden placed on a contractor when the Authority withheld a percentage of the amounts owed to a subcontractor in addition to one hundred fifty percent of its lien amount.  The Authority will stop this double withholding by limiting the amounts withheld to either one hundred fifty percent of a subcontractor’s lien or one hundred fifty percent of a subcontractor’s claim under the special payment protections of section 1735.  

These provisions do not apply to subcontractors acting as primes (i.e. subcontractors whose contract is limited to the performance of a single scope of the plumbing, electrical or mechanical work for the project). These Amendments are already effective and certain contractors and subcontractors currently performing work for the Authority are already subject to these provisions if their contracts come within the Act rather than the Wicks Law. 

If you would like more information on this issue or any other construction issue, please contact Welby, Brady & Greenblatt, LLP. 

This Legal Alert 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. 

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