How fast must we be paid on a New Jersey construction project, and what can the contract do about it?
Where the prime contractor has performed in accordance with its contract and the billing has been approved and certified, the owner must pay each periodic payment, final payment or retainage not more than 30 calendar days after the billing date; the billing is DEEMED approved and certified 20 days after receipt unless the owner gives a written statement of the amount withheld and the reason before that 20 days runs. Down the chain, where the subcontractor has performed and the work has been accepted, a prime contractor must pay its subcontractor, and a subcontractor its sub-subcontractor, within 10 calendar days of receiving each payment, unless the parties have otherwise agreed in writing. Late payment carries interest at the prime rate plus 1%. Three qualifications sit in the section's own text. A public or governmental owner whose governing body must vote on each payment may approve and certify at its next scheduled public meeting and pay in its subsequent payment cycle, if the bid specifications and contract documents so define (§ 2A:30A-2(a)). Down the chain, on ongoing work with partial payments, the amount owed for completed work is payable only if the subcontractor "is performing to the satisfaction of the prime contractor" (§ 2A:30A-2(b)). And the section's rights are in addition to, and where greater supersede, other State-law remedies, while nothing in it restricts the rights of a resident homeowner or purchaser (§ 2A:30A-2(e)).
The trap
The self-help remedy is the part drafters forget: on seven calendar days' written notice a contractor, subcontractor or sub-subcontractor may SUSPEND performance without penalty for breach until the required payment is made, if it was not paid, was not given a written statement of the amount withheld and the reason, and the payor is not making a good-faith effort to resolve the withholding. Two more New Jersey specifics. Every contract for the improvement of structures entered into after the effective date of P.L.2006, c.96 must provide that payment disputes MAY be submitted to alternative dispute resolution, and in any civil action to collect payments under the section the action must be conducted inside New Jersey and the prevailing party is awarded reasonable costs and attorney fees: a mandatory fee shift and an in-state venue rule. The 10-day downstream duty yields to a written agreement ('the parties have not otherwise agreed in writing'); subsection (a)'s owner duty contains no such language. Two limits sit on two subsections. Federally funded transportation projects can fall outside it: the interest remedy in subsection c. “shall not apply to any transportation project as defined in section 3 of P.L. 1984, c.73 (C.27:1B-3), if that project receives federal funding and the awarding agency has been notified by the federal government that it will be classified as a high risk grantee pursuant to 49 C.F.R. 18.12.”, and a second, parallel exclusion applies where the provision would jeopardise federal funding because the owner could not meet the financial-management standards in 49 C.F.R. 18.20. And the dispute route the section opens is narrower than a general arbitration clause: “Alternative dispute resolution permitted by this section shall not apply to disputes concerning the bid solicitation or award process, or to the formation of contracts or subcontracts.”
10 authorities
- statuteN.J. Stat. Ann. § 2A:30A-2enactment date not established
The words that state the rule
2. a. If a prime contractor has performed in accordance with the provisions of a contract with the owner and the billing for the work has been approved and certified by the owner or the owner's authorized approving agent, the owner shall pay the amount due to the prime contractor for each periodic payment, final payment or retainage monies not more than 30 calendar days after the billing date, which for a periodic billing, shall be the periodic billing date specified in the contract. The billing shall be deemed approved and certified 20 days after the owner receives it unless the owner provides, before the end of the 20-day period, a written statement of the amount withheld and the reason for withholding payment, except that in the case of a public or governmental entity that requires the entity's governing body to vote on authorizations for each periodic payment, final payment or retainage monies, the amount due may be approved and certified at the next scheduled public meeting of the entity's governing body, and paid during the entity's subsequent payment cycle, provided this exception has been defined in the bid specifications and contract documents.
- statuteN.J. Stat. Ann. § 2A:30A-2enactment date not established
The words that state the rule
b. If a subcontractor or subsubcontractor has performed in accordance with the provisions of its contract with the prime contractor or subcontractor and the work has been accepted by the owner, the owner's authorized approving agent, or the prime contractor, as applicable, and the parties have not otherwise agreed in writing, the prime contractor shall pay to its subcontractor and the subcontractor shall pay to its subsubcontractor within 10 calendar days of the receipt of each periodic payment, final payment or receipt of retainage monies, the full amount received for the work of the subcontractor or subsubcontractor based on the work completed or the services rendered under the applicable contract. In the case of ongoing work on the same project for which partial payments are made, the amount of money owed for work already completed shall only be payable if the subcontractor or subsubcontractor is performing to the satisfaction of the prime contractor or subcontractor, as applicable.
- statuteN.J. Stat. Ann. § 2A:30A-2enactment date not established
The words that state the rule
c. If a payment due pursuant to the provisions of this section is not made in a timely manner, the delinquent party shall be liable for the amount of money owed under the contract, plus interest at a rate equal to the prime rate plus 1%. Interest on amounts due pursuant to this section shall be paid to the prime contractor, subcontractor or subsubcontractor for the period beginning on the day after the required payment date and ending on the day on which the check for payment has been drawn. The provisions of this subsection c. shall not apply to any transportation project as defined in section 3 of P.L. 1984, c.73 (C.27:1B-3), if that project receives federal funding and the awarding agency has been notified by the federal government that it will be classified as a high risk grantee pursuant to 49 C.F.R. 18.12.
- statuteN.J. Stat. Ann. § 2A:30A-2enactment date not established
The words that state the rule
d. A prime contractor, subcontractor or subsubcontractor may, after providing seven calendar days' written notice to the party failing to make the required payments, suspend performance of a construction contract, without penalty for breach of contract, until the payment required pursuant to this section is made, if the contractor, subcontractor or subsubcontractor: is not paid as required by this section; is not provided a written statement of the amount withheld and the reason for the withholding; and the payor is not engaged in a good faith effort to resolve the reason for the withholding. The provisions of this subsection d. shall not apply to any transportation project as defined in section 3 of P.L. 1984, c.73 (C.27:1B-3), if that project receives federal funding and the application of this provision would jeopardize the funding because the owner could not meet the federal standards for financial management systems as outlined in 49 C.F.R. 18.20.
- statuteN.J. Stat. Ann. § 2A:30A-2enactment date not established
The words that state the rule
f. All contracts for the improvement of structures entered into after the effective date of P.L.2006, c.96 between owners, prime contractors, subcontractors or subsubcontractors shall provide that disputes regarding whether a party has failed to make payments required pursuant to this section may be submitted to a process of alternative dispute resolution. Alternative dispute resolution permitted by this section shall not apply to disputes concerning the bid solicitation or award process, or to the formation of contracts or subcontracts. In any civil action brought to collect payments pursuant to this section, the action shall be conducted inside of this State and the prevailing party shall be awarded reasonable costs and attorney fees.
- statuteN.J. Stat. Ann. § 2A:30A-2enactment date not established
The words that state the rule
e. (1) The rights, remedies or protections provided by this section for prime contractors, subcontractors and subsubcontractors shall be in addition to other remedies provided pursuant to any other provision of State law. To the extent that the provisions of this section provide greater rights, remedies or protections for prime contractors, subcontractors and subsubcontractors than other provisions of State law, the provisions of this section shall supersede those other provisions. (2) No provision of this section shall be construed as restricting in any way the rights or remedies provided by any other applicable State or federal law to an owner who is a resident homeowner or purchaser with respect to the real property being improved.
- statuteN.J. Stat. Ann. § 2A:30A-1enactment date not established
The words that state the rule
"Owner" means any person, including any public or governmental entity, who has an interest in the real property to be improved and who has contracted with a prime contractor for such improvement to be made. "Owner" shall be deemed to include any successor in interest or agent acting on behalf of an owner.
- statuteN.J. Stat. Ann. § 2A:30A-1enactment date not established
The words that state the rule
"Billing" means, in accordance with the terms and definitions of the applicable contract, any periodic payment, final payment, written approved change order or request for release of retainage.
- statuteN.J. Stat. Ann. § 2A:30A-1enactment date not established
The words that state the rule
"Prime rate" means the base rate on corporate loans at large United States money center commercial banks.
- statuteN.J. Stat. Ann. § 2A:30A-1enactment date not established
The words that state the rule
"Improve" means: to build, alter, repair or demolish any structure upon, connected with, on or beneath the surface of any real property; to excavate, clear, grade, fill or landscape any real property; to construct driveways and private roadways on real property; to furnish construction related materials, including trees and shrubbery, for any of the above purposes; or to perform any labor upon a structure, including any design, professional or skilled services furnished by an architect, engineer, land surveyor or landscape architect licensed or registered pursuant to the laws of this State.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.