Can our construction contract set its own payment timetable, and what does New York impose if it does not?
GBL article 35-E governs a construction contract: a written or oral agreement for the construction, reconstruction, alteration, maintenance, moving or demolition of a building, structure or improvement, or for the excavation or other development of land, where the aggregate cost of the construction project, including all labor, services, materials and equipment, equals or exceeds $150,000, excluding public-works projects and their subcontracts, individual one-, two- and three-family dwellings, a residential tract development of a hundred or fewer one- or two-family dwellings, residential projects of 4,500 square feet or less, and certain subsidised residential projects of fewer than seventy-five units (§ 756(1)). Its stated policy is to expedite payment, and except as otherwise provided in the article the contract's terms supersede it (§ 756-a). A contractor may invoice for interim payments at the end of the billing cycle and may submit a final invoice on reaching substantial completion as the contract defines it. An owner must approve or disapprove an invoice within twelve business days after delivery of the invoice and required documentation; approval may not be unreasonably withheld and an owner may not disapprove in bad faith; an owner that declines must prepare and issue a written statement describing the items not approved; and the statute lists the six grounds on which it may decline: unsatisfactory or disputed job progress, defective work or material not remedied, disputed work materials, failure to comply with other material provisions, the contractor's failure to make timely payments for labor, payroll taxes, insurance, equipment or materials (or reasonable evidence the job cannot be completed for the unpaid balance), and the owner's architect declining to certify payment for a reason carried in that written statement. The same twelve-business-day duty, with its own five-item list, binds a contractor or subcontractor approving an invoice from below. Payment of an approved interim or final invoice is due not later than thirty days after approval, except that where the owner's payment is contingent upon lender approval it is due seven days after the owner receives good funds. A contractor or subcontractor must pay its subcontractors their share seven days after receipt of good funds, and may withhold from a subcontractor's interim payment only sums sufficient to correct the deficiencies identified under § 756-a(2)(a)(ii) or, in the alternative, the line-item amount in the agreed schedule of values with any change orders (§ 756-a(2)-(3)). Late payment to a contractor carries interest at one percent per month or a higher contractual rate, and, notwithstanding any contrary agreement, so does late payment to a subcontractor (§ 756-b(1)). Retainage is capped at five percent and must be released by the owner no later than thirty days after final approval of the work; an owner, contractor or subcontractor that fails to release retainage as the article requires owes interest at one percent per month on the date retention was due and owing (§ 756-c). A contractor whose owner has missed the article's approval or payment deadlines may suspend performance without being in breach, but only on written notice, at least ten calendar days before the intended suspension, telling the owner that payment for undisputed invoice amounts has not been received and that the contractor intends to suspend, and only if the owner has not cured by the tenth calendar day; a party that suspends need not furnish further labor, materials or services until it is paid the undisputed amount, every time frame in that section is extended by the length of the suspension, and re-mobilization costs are left to negotiation (§ 756-b(2)). Any notice under the article must be sent by facsimile and reputable overnight courier and is effective on the date sent (§ 756(6)). On written notice of a complaint (which has to be delivered by a means that gives written third-party verification of delivery) the parties must first attempt to resolve the matter; if that fails the aggrieved party may refer it to the American Arbitration Association for expedited arbitration, and the arbitrator's award is final, open to vacatur or modification only as CPLR article 75 allows (§ 756-b(3)). Section 757 makes void: an out-of-state choice-of-law or dispute-resolution-forum clause (material-supplier contracts excepted), a clause barring suspension for non-payment, a clause making the § 756-b expedited arbitration unavailable, a clause establishing payment provisions that differ from § 756-a(3) and § 756-b, and a retainage requirement above five percent. Three sections the article adds that a payment schedule has to survive. Section 756-d extends every payment date under § 756-a to the seventh day after the payer receives loan proceeds where it has obtained a loan for the work, timely requested disbursement, and the lender was legally obliged to disburse and failed to do so. Section 756-e takes the article off contracts for reconstruction in and around the World Trade Center necessitated by the September 11, 2001 attack. And § 756-f(3) supplies a statutory ground to withhold: where a contractor or a contractor's subcontractor has asked a subcontractor on the job for the certified payroll records § 756-f(1) requires or the worker, scheduling and contact information § 756-f(2) lists, a failure to comply in time "shall be a basis for a contractor to withhold payments owed to a subcontractor at any tier". A contractor or subcontractor must also disclose to each subcontractor, when the subcontract is made, the due date for its own receipt of payment from above; if it does not disclose that date accurately it must pay the subcontractor as though the owner had met the § 756-a(3)(a) due dates, and an owner must, on a subcontractor's written request, give notice within five days of any interim or final payment to the contractor (§ 756-a(4)). Within § 756-a, what the parties may still set is the billing cycle (§ 756-a(1)), and an owner may withhold from an interim payment "only an amount that is sufficient to pay the costs and expenses the owner reasonably expects to incur" to cure the noticed defect, or in the alternative the line-item amount in the agreed schedule of values together with any change orders, additions and/or deletions, and/or an amount sufficient to cover liquidated damages as established in an agreed upon schedule in the construction contract (§ 756-a(3)(a)(iv)).
The trap
The two sentences drafters misread sit next to each other. Section 756-a opens by saying the contract's terms supersede the article 'except as otherwise provided in this article', but § 757(4) is such a provision: it voids any clause establishing payment provisions that differ from § 756-a(3) (the thirty-day and seven-day payment terms and the withholding limits) and § 756-b (interest, suspension and expedited arbitration). So the payment regime is mandatory in a covered contract, not a default; what the parties may still set is, for example, the billing cycle (§ 756-a(1)). The other trap is coverage: § 756(1) words the $150,000 threshold as the aggregate cost of the construction PROJECT, not the price in any one agreement, while its residential exclusions take many housing projects out entirely. Whether a particular low-value subcontract on a covered project is itself within the article was not separately examined. A third trap runs the other way: missing the twelve-business-day approval deadline does not forfeit the payer's defenses. The Second Department, in a memorandum decision, held that the prompt payment law did not bar a contractor that had failed to issue a written disapproval from contesting the sums invoiced, because nothing in § 756-b makes a failure to disapprove or to pay a waiver of the right to contest or an admission that the money is owed; what the article gives the unpaid party is interest, suspension and expedited arbitration.
24 authorities
- statuteN.Y. GBS Law § 756enactment date not established
The words that state the rule
1. "Construction contract" means a written or oral agreement for the construction, reconstruction, alteration, maintenance, moving or demolition of any building, structure or improvement, or relating to the excavation of or other development or improvement to land, and where the aggregate cost of the construction project including all labor, services, materials and equipment to be furnished, equals or exceeds one hundred fifty thousand dollars. For the purposes of this article a construction contract shall not include any such contract made and awarded by the state, any public department, any public benefit corporation, any public corporation or official thereof, or a municipal corporation or official thereof for construction, reconstruction, alteration, repair, maintenance, moving or demolition of any public works project nor any contract with a contractor or subcontractor which is part of such project; or any such contract the purpose of which is the construction, reconstruction, alteration, repair, maintenance, moving or demolition of an individual one, two or three family residential dwelling or a residential tract development of one hundred or less one or two family dwellings, or any residential construction project where the aggregate size of such project is four thousand five hundred square feet or less, or any residential project of fewer than seventy-five units which receives financial assistance from the federal government, the state or a municipal entity designed for households earning an average of one hundred twenty-five percent of the housing and urban development agency area median income.
- statuteN.Y. GBS Law § 756enactment date not established
The words that state the rule
6. "Notice." Any notice by the owner, contractor or subcontractor under this article shall be sent by facsimile and reputable overnight courier and shall be deemed effective on the date sent.
- statuteN.Y. GBS Law § 756-Aenactment date not established
The words that state the rule
It is the policy and purpose of this article to expedite payment of all monies owed to those who perform contracting services pursuant to construction contracts. Except as otherwise provided in this article, the terms and conditions of a construction contract shall supersede the provisions of this article and govern the conduct of the parties thereto.
- statuteN.Y. GBS Law § 756-Aenactment date not established
The words that state the rule
2. Invoices. (a) A contractor shall be entitled to invoice the owner for interim payments at the end of the billing cycle. A contractor shall be entitled to submit a final invoice for payment in full upon reaching substantial completion, as such term is defined in the contract or as it is contemplated by the terms of the contract. (i) Upon delivery of an invoice and all contractually required documentation, an owner shall approve or disapprove all or a portion of such invoice within twelve business days. Owner approval of invoices shall not be unreasonably withheld nor shall an owner, in bad faith disapprove all or a portion of an invoice. If an owner declines to approve an invoice or a portion thereof, it must prepare and issue a written statement describing those items in the invoice that are not approved. An owner may decline to approve an invoice or portion of an invoice for: (1) Unsatisfactory or disputed job progress; (2) Defective construction work or material not remedied; (3) Disputed work materials; (4) Failure to comply with other material provisions of the construction contract; (5) Failure of the contractor to make timely payments for labor including collectively bargained fringe benefit contributions, payroll taxes and insurance, equipment and materials, damage to the owner, or reasonable evidence that the construction contract cannot be completed for the unpaid balance of the construction contract sum; or (6) Failure of the owner's architect to certify payment for any or all of the reasons set forth in this section so long as the reasons are included in the owner's written statement of disapproval.
- statuteN.Y. GBS Law § 756-Aenactment date not established
The words that state the rule
(ii) Upon delivery of an invoice and all contractually required documentation, a contractor or subcontractor shall approve or disapprove all or a portion of such invoice within twelve business days. Contractor and subcontractor approval of invoices shall not be unreasonably withheld nor shall a contractor or subcontractor, in bad faith, disapprove all or a portion of an invoice. Nothing in this section shall prohibit the contractor or subcontractor, at the time of application to the owner or contractor, from withholding such application to the owner or contractor for payment to the subcontractor or material supplier for: (1) Unsatisfactory or disputed job progress; (2) Defective construction work or material not remedied; (3) Disputed work; (4) Failure to comply with other material provisions of the construction contract; or (5) Failure of the subcontractor to make timely payments for labor including collectively bargained fringe benefit contributions; payroll taxes and insurance, equipment and materials, damage to contractor or another subcontractor or material supplier, or reasonable evidence that the subcontract cannot be completed for the unpaid balance of the subcontract sum. (b) Nothing in this subdivision shall authorize the withholding of an application to the owner or contractor for the payment to a subcontractor or material supplier when due to a delay in job progress by the owner, contractor or another subcontractor or material supplier other than the applicant or applicant's subcontractor or material supplier.
- statuteN.Y. GBS Law § 756-Aenactment date not established
The words that state the rule
3. Payment. (a) The owner's payment of a contractor's interim and final invoices shall be made on the basis of a duly approved invoice of work performed and the material supplied during the billing cycle. (i) Unless the provisions of this article provide otherwise, the owner shall pay the contractor strictly in accordance with the terms of the construction contract. (ii) Payment of an interim or final invoice shall be due from the owner not later than thirty days after approval of the invoice. (iii) If payment by the owner is contingent upon lender approval, payment of a contractor's interim or final invoice or the amount of loan proceeds disbursed by the lender for payment of the contractor's interim or final invoice shall be due from the owner seven days after receipt by the owner of good funds except where the provisions of section seven hundred fifty-six-d of this article applies.
- statuteN.Y. GBS Law § 756-Aenactment date not established
The words that state the rule
(ii) When a subcontractor has performed in accordance with the provisions of its construction contract, the contractor shall pay to the subcontractor, and each subcontractor shall in turn pay to its subcontractors, the full or proportionate amount of funds received from the owner for each subcontractor's work and materials based on work or services provided under the construction contract, seven days after receipt of good funds for each interim or final payment, provided all contractually required documentation and waivers are received. (iii) A contractor or subcontractor may withhold amounts received from an owner in connection with an interim payment due to a subcontractor or material supplier only such sums that are sufficient to pay the direct expenses as are reasonable to correct deficiencies identified pursuant to subparagraph (ii) of paragraph (a) of subdivision two of this section, or in the alternative, to withhold an amount not to exceed the line item amount appearing in the agreed schedule of values, together with any change order, additions or deletions, if such schedule has been previously submitted.
- statuteN.Y. GBS Law § 756-Benactment date not established
The words that state the rule
1. (a) If any interim or final payment to a contractor is delayed beyond the due date established in paragraph (a) of subdivision three of section seven hundred fifty-six-a of this article, the owner shall pay the contractor interest beginning on the next day at the rate of one percent per month or fraction of a month on the unpaid balance, or at a higher rate consistent with the construction contract.
- statuteN.Y. GBS Law § 756-Benactment date not established
The words that state the rule
Notwithstanding any contrary agreement, if any interim or final payment to a subcontractor is delayed beyond the due date established in paragraph (b) of subdivision three of section seven hundred fifty-six-a of this article the contractor or subcontractor shall pay its subcontractor interest, beginning on the next day, at the rate of one percent a month or fraction of a month on the unpaid balance, or at a higher rate consistent with the construction contract.
- statuteN.Y. GBS Law § 756-Benactment date not established
The words that state the rule
2. (a) (i) If an owner fails to approve or disapprove an invoice within the time limits established in subparagraph (i) of paragraph (a) of subdivision two of section seven hundred fifty-six-a of this article, or to pay the contractor the undisputed invoice amount within the time limits provided by paragraph (a) of subdivision three of section seven hundred fifty-six-a of this article, the contractor may suspend contractually required performance, only after providing the owner written notice and an opportunity to cure consistent with subparagraph (ii) of this paragraph. (ii) A contractor intending to suspend performance on the construction contract for failure of the owner to make timely payments or approvals within the time limits provided by this article must provide the owner written notice at least ten calendar days before the contractor's intended suspension. Such notice shall: (A) inform the owner that payment for undisputed invoice amounts have not been received; and (B) state the intent of the contractor to suspend performance for non-payment. If after the tenth calendar day following written notice the owner has not cured the deficiency, the contractor may suspend performance. (iii) A contractor shall not be deemed in breach of the construction contract for suspending performance pursuant to this section.
- statuteN.Y. GBS Law § 756-Benactment date not established
The words that state the rule
(iv) (A) A contractor or subcontractor that suspends performance as provided in this section shall not be required to furnish further labor, materials or services until the contractor or subcontractor is paid the undisputed invoice amount at the time period for completion as provided in the construction contract, or a final determination has been made in compliance with subdivision three of this section and complied with. All of the time frames established within this section shall be extended for the length of time performance was suspended. Payment of documented actual costs incurred for re-mobilization resulting from suspension shall be negotiated between the parties.
- statuteN.Y. GBS Law § 756-Benactment date not established
The words that state the rule
3. (a) Upon receipt of written notice of a complaint (i) that an owner has violated the provisions of this article; (ii) that a contractor has violated the provisions of this article; (iii) where a contractor alleges a subcontractor has violated the provisions of this article; (iv) where a subcontractor alleges a contractor has violated the provisions of this article; (v) where a subcontractor alleges that another subcontractor has violated the provisions of this article; (vi) where a contractor or subcontractor alleges a material supplier has violated the provisions of this article; or (vii) where a material supplier alleges a contractor or subcontractor has violated the provisions of this article; the parties shall attempt to resolve the matter giving rise to such complaint. (b) The written notice required under this section shall be delivered at or sent by any means that provides written, third-party verification of delivery to the last business address known to the party giving notice. (c) If efforts to resolve such matter to the satisfaction of all parties are unsuccessful, the aggrieved party may refer the matter, not less than fifteen days of the receipt of third party verification of delivery of the complaint, to the American Arbitration Association for an expedited arbitration pursuant to the Rules of the American Arbitration Association. (d) Upon conclusion of the arbitration proceedings, the arbitrator shall submit to the parties his or her opinion and award regarding the alleged violation. (e) The award of the arbitrator shall be final and may only be vacated or modified as provided in article seventy-five of the civil practice law and rules upon an application made within the time provided by section seventy-five hundred two of the civil practice law and rules.
- case113 A.D.3d 724Donninger Constr., Inc. v. C.W. Brown, Inc.N.Y. App. Div. 2d Dep'tdecided 2014read it at the source ↗
The words that state the rule
Contrary to the plaintiffs contention, General Business Law § 756-a et seq., known as the “prompt payment law,” did not bar the defendant from asserting any defenses to the plaintiff s claims because the defendant allegedly failed to issue a written disapproval on the invoices that the plaintiff had submitted to it. Pursuant to General Business Law § 756-a (2) (a) (ii), “[u]pon delivery of an invoice ... a contractor or subcontractor shall approve or disapprove all or a portion of [an] invoice within twelve business days.” General Business Law § 756-b, which is entitled “Remedies,” provides for the imposition of interest on the unpaid balance of a submitted invoice, for the suspension of performance, and for arbitration. However, nothing in General Business Law § 756-b provides that a contractor’s failure to timely disapprove or make payment on an invoice prevents the contractor from contesting, acts as a waiver of a contractor’s ability to contest, or constitutes an admission that the contractor owes the invoiced sum. Thus, the defendant properly asserted its defenses to the plaintiffs breach of contract claims.
- statuteN.Y. GBS Law § 756-Cenactment date not established
The words that state the rule
§ 756-c. Retention. By mutual agreement of the relevant parties an owner may retain no more than five per centum of the contract sum as retainage. A contractor or subcontractor may also retain no more than five per centum for retainage and in no case shall retainage exceed the actual percentage retained by the owner. Retainage shall be released by the owner to the contractor no later than thirty days after the final approval of the work under a construction contract. In the event that an owner fails to release retainage as required by this article, or the contractor or subcontractor fails to release a proportionate amount of retainage to the relevant parties after receipt of retainage from the owner, the owner, contractor, or subcontractor, as the case may be, shall be subject to the payment of interest at the rate of one percent per month on the date retention was due and owing.
- statuteN.Y. GBS Law § 757enactment date not established
The words that state the rule
The following provisions of construction contracts shall be void and unenforceable: 1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract, with the exception of a contract with a material supplier, that makes the contract subject to the laws of another state or that requires any litigation, arbitration or other dispute resolution proceeding arising from the contract to be conducted in another state.
- statuteN.Y. GBS Law § 757enactment date not established
The words that state the rule
2. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that a party to the contract cannot suspend performance under the contract if another party to the contract fails to make prompt payments under the contract. 3. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that expedited arbitration as expressly provided for and in the manner established by section seven hundred fifty-six-b of this article is unavailable to one or both parties.
- statuteN.Y. GBS Law § 757enactment date not established
The words that state the rule
4. A provision, covenant, clause or understanding in collateral to or affecting a construction contract establishing payment provisions which differ from those established in subdivision three of section seven hundred fifty-six-a and section seven hundred fifty-six-b as applicable.
- statuteN.Y. GBS Law § 757enactment date not established
The words that state the rule
5. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract requiring retainage as expressly provided for by section seven hundred fifty-six-c of this article in an amount exceeding five percent of the contract sum.
- statuteN.Y. GBS Law § 756-aenactment date not established
The words that state the rule
1. Billing cycle. The parties to a construction contract may, by mutual agreement, establish a billing cycle for the submission of invoices requesting payment for work performed pursuant to a construction contract. In the absence of an agreement by the parties as to the billing cycle, the billing cycle shall be the calendar month within which the work is performed.
- statuteN.Y. GBS Law § 756-aenactment date not established
The words that state the rule
(iv) An owner may withhold from an interim payment only an amount that is sufficient to pay the costs and expenses the owner reasonably expects to incur in order to cure the defect or correct any items set forth in writing pursuant to subparagraph (i) of paragraph (a) of subdivision two of this section, or in the alternative, to withhold an amount not to exceed the line item amount appearing in the agreed schedule of values together with any change orders, additions and/or deletions, if such schedule has been previously submitted, and/or an amount sufficient to cover liquidated damages as established in an agreed upon schedule in the construction contract.
- statuteN.Y. GBS Law § 756-Aenactment date not established
The words that state the rule
4. Notice. A contractor or subcontractor shall disclose to a subcontractor, at the time the construction subcontract is entered into, the due date for receipt of payments to the contractor or subcontractor from the owner or the contractor as the case may be. If a contractor or subcontractor fails to accurately disclose the due date to a subcontractor, the contractor or subcontractor shall be obligated to pay the subcontractor as though the due dates established in paragraph (a) of subdivision three of this section were met by the owner. In addition, upon written request of a subcontractor, the owner shall provide notice to such subcontractor within five days of making any interim or final payment to the contractor. The subcontractor's request shall remain in effect for the duration of the subcontractor's work on the project.
- statuteN.Y. GBS Law § 756-denactment date not established
The words that state the rule
§ 756-d. Exceptions for failure of lender to disburse funds. The date of payment required by the owner, the contractor and/or subcontractor pursuant to section seven hundred fifty-six-a of this article, shall be extended to the seventh day after the owner, contractor or subcontractor, as the case may be, receives loan proceeds necessary to make such payment in the event that: 1. the owner, contractor or subcontractor, as the case may be, has obtained a loan intended to pay for all or part of the construction contract; 2. the owner, contractor or subcontractor, as the case may be, has timely requested disbursement of proceeds from that loan; and 3. the lender is legally obligated to disburse such proceeds to the owner, contractor or subcontractor, as the case may be, but has failed to do so in a timely manner.
- statuteN.Y. GBS Law § 756-eenactment date not established
The words that state the rule
§ 756-e. Exceptions for lower Manhattan reconstruction. The provisions of this article shall not apply to any construction contracts for the reconstruction, alteration, moving or demolition of any building, structure or improvement, or relating to the excavation of or any development or improvement to land in and around the world trade center necessitated by the September eleventh, two thousand one terrorist attack on such center.
- statuteN.Y. GBS Law § 756-fenactment date not established
The words that state the rule
1. Upon request of a contractor, or a contractor's subcontractor, to any subcontractor which performs any portion of work within the scope of the contractor's construction contract with an owner, such subcontractor shall provide certified payroll records which, at a minimum, contain all lawfully required information required by articles six and nineteen of the labor law for all employees providing labor on the project. Such payroll records shall contain sufficient information to apprise the contractor or subcontractor of such subcontractor's payment status in paying wages and benefits, as defined by section one hundred ninety-eight-c of the labor law, including payments or contributions on the employee's behalf. Payroll records shall be marked or redacted to an extent only to prevent disclosure of an individual's full social security number but shall provide the last four digits of the social security number. 2. Upon request of a contractor, or a contractor's subcontractor, to any subcontractor which performs any portion of work within the scope of the contractor's construction contract with an owner, such subcontractor shall provide: (a) the names of all workers of such subcontractor on the project, including the names of all those designated as independent contractors; (b) when applicable, the name of the contractor's subcontractor with whom such subcontractor is under contract; (c) the anticipated contract start date; (d) the scheduled duration of work; (e) when applicable, local unions with whom such subcontractor is a signatory contractor; and (f) the name, address and phone number of a contact for such subcontractor. 3. Failure to timely comply with a request for information as provided herein shall be a basis for a contractor to withhold payments owed to a subcontractor at any tier.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.