What you need to know about the Construction Contracts Act and its 2009 Amendments

Article 35-E of the New York State General Business Law, commonly referred to as the Construction Contracts Act of New York, was enacted on January 14th, 2003. The New York State Legislature passed the Act in order to stop unfair payment delays to contractors and subcontractors who performed work, labor and services on private improvement contracts. The Act includes recourses that contractors and subcontractors can exercise if they are not paid in timely manner as outlined in the Act. Public works projects, some residential projects and projects stemming from 9/11 are exempt from the Act. Under the Act, all private construction contracts, both verbal and written, entered into after January 14th, 2003 and having hard costs with a total value of $250,000 or more was subject to the Act. The New York State Legislature passed several critical amendments to the Act on September 8th, 2009 that have influenced the Act's usefulness with the construction industry. First, the 2009 Amendments reduced the total amount to $150,000 for private construction projects awarded after September 8th, 2009. Second, the 2009 Amendments restricted the use of contract language that could circumvent the statutory requirements. In other words, under the Act, most provisions could be superseded by contract language. Now, the 2009 Amendments supersede any conflicting language in a contract. The 2009 Amendments made the remedies in the Act stronger by making contract provisions null and void, if the provisions: * Include payment terms that are stricter than those in the Act. * Bans one or more parties from expedited arbitration established in the 2009 Amendments. Requirements for all contracts subject to the Act include the: * Right to interest payments. * Right to suspend work performance for non-payment. * Right to have New York Law govern the obligations of the parties. * Right to have New York as the jurisdiction for all disputes. The majority of the Act and the 2009 Amendments focuses on payment provisions. Interim Payments The Act allows contractors and subcontractors to invoice interim payments each month. The invoice recipient must approve or disapprove the invoice within 12 business days of receiving it along with all required documentation specified in the contract. The party who rejects an invoice or parts of it must write a statement outlining the rejected item(s), reason(s) for the rejection, and the payment amount that he/she is withholding because of the rejection. Payment Due Dates Payment is due no later than 30 days from approval of an invoice or requisition. The 2009 Amendments no longer allow for the timing of payment to change in construction contracts covered by the Act. Late Payments If payments are made beyond the due date, the payer must pay interest at a rate of 1% per month or at a higher rate if negotiated in the contract. The contractor also has the right to stop working without breaching the contractor if he/she gives the owner a 10-day written notice with the opportunity to cure if the owner did not approve or make payments in a timely manner. Arbitration The 2009 Amendments allow binding and expedited arbitration between parties to resolve alleged violations of the Act. Prior to demanding arbitration, the violated party must send written notice of the complaint to the party of parties in violation of the Act. Upon receipt, the parties should try to resolve the matter. If they cannot resolve the mater within 15 days of receipt of the complaint, the aggrieve party may refer the matter to the American Arbitration Association for an expedited hearing. While the purpose of the Act was to protect contractors and subcontractors from unfair payment terms, it allowed owners and general contractors to easily avoid the terms of the statute by simply drafting stricter terms in the contracts. However, now owners and general contractors must abide by the statutory requirements as they cannot be bypassed by contractual language. In sum, the New York State Legislature has made many of the terms of the Act mandatory and owners and general contractors must review their contracts to incorporate and/or consider the required terms for future projects. Andrew Richards, Esq., is a partner at Kaufman, Dolowich, Voluck & Gonzo LLP, Woodbury, N.Y.