As of November 17, 2023, changes have been made to New York’s legislation regarding payments in private commercial construction projects valued at $150,000 or more. Governor Kathy Hochul signed Senate Bill 3539, resulting in amendments to Section 756-a and Section 756-c of the New York General Business Law, also referred to as the Prompt Payment Act. The purpose of these amendments is to safeguard timely payments to contractors and impose constraints on the volume of retainage that can be withheld.
JD Supra reported on the recent developments to the Prompt Payment Act, translating the implications for individuals and corporations involved in the private commercial construction sector. This impacts a wide range of professionals within the industry, from contractors and subcontractors to owners and construction managers.
For those unfamiliar with the concept, retainage is a common practice in the construction industry where a percentage of the total contract price or the payments to the contractor are withheld. This creates an incentive for contractors to complete projects fully and satisfactorily while also providing a financial buffer for owners in case of underperformance or contractual non-compliance.
However, the practice of retainage has its pitfalls. It often leads to cash flow issues for contractors, especially when unduly large percentages are retained. The modified Prompt Payment Act aims to address this concern. While the exact details of the amendments have not been disclosed, any changes to the constraints on retainage hold significant implications for the financial operations of construction projects across New York state.
Legal professionals in the construction field, particularly those based in New York, will need to consider these changes when drafting and negotiating contracts moving forward. Comprehending these recent legislative shifts is crucial for maintaining legally compliant and financially viable operations.