Keeping the Wheels Turning: Understanding New York’s Prompt Payment Laws in Construction

In the bustling construction landscape of New York, timely payment is crucial for the smooth operation of projects and the financial stability of contractors and subcontractors. However, payment delays can create a ripple effect, leading to financial hardship, project delays, and even legal disputes. This is where New York’s prompt payment laws step in, providing a framework to ensure that payments are made within reasonable timeframes. These laws, found within Article 35-E of the New York State General Business Law, aim to prevent unfair payment practices and promote a healthy flow of funds throughout the construction industry.

Essentially, New York’s prompt payment laws mandate that owners, contractors, and subcontractors make payments within specified timeframes after receiving a proper invoice. For private projects, owners must pay contractors within 30 days of invoice approval, while contractors must pay subcontractors within seven days of receiving payment from the owner. For public projects, the timeframes may differ slightly, but the principle of timely payment remains the same. These laws also address retainage, limiting the amount that can be withheld and requiring its prompt release upon substantial completion of the work.

When prompt payment obligations are not met, construction litigation often ensues. Contractors and subcontractors may file lawsuits to recover unpaid amounts, seeking damages for breach of contract, interest, and even attorney’s fees. These disputes can become complex and costly, involving detailed analysis of project documentation, payment records, and contractual agreements. Moreover, the burden of proof rests on the party claiming non-payment, necessitating meticulous record-keeping and robust documentation of work performed and invoices submitted.

As an alternative to litigation in court, the Prompt Payment Act also allows an aggrieved party to pursue arbitration, which offers a potentially faster and less expensive alternative. Arbitration involves a neutral third party who hears evidence and renders a binding decision. In the context of prompt payment disputes, arbitration can provide a streamlined process for resolving payment disagreements without the need for lengthy court proceedings.

It is important to note that while the prompt payment laws offer significant protection, they are not a guaranteed solution to all payment problems. Clear and comprehensive contracts, diligent record-keeping, and open communication between all parties involved are vital for preventing payment disputes. Understanding the specifics of Article 35-E, including the timeframes and notice requirements, can empower contractors and subcontractors to protect their rights and ensure they receive the payments they are owed.

Resources:

  • New York State General Business Law, Article 35-E: This is the primary source for understanding New York’s prompt payment laws. You can find it on the New York State Legislature’s website.
  • New York State Unified Court System: This website provides information on court procedures and resources related to construction litigation.
  • American Arbitration Association (AAA): The AAA offers resources and information on arbitration and mediation, including rules and procedures for construction disputes.
  • Associated General Contractors of New York State (AGC NYS): This organization provides resources and advocacy for the construction industry in New York, including information on legal and regulatory issues.
  • New York State Bar Association (NYSBA): The NYSBA can provide information on finding legal counsel specializing in construction law.

To learn more about New York’s Prompt Payment Act, please click here.

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John Caravella, Esq

The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608-1346.

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