Construction Law Insider

On November 17, 2023, Governor Kathy Hochul signed a bill amending the NY Prompt Payment Act (General Business Law Article 35-E) by (1) allowing a contractor to submit a final invoice for payment in full upon reaching substantial completion (GBL §756-a [2][a]); and (2) limiting the amount of retainage to be withheld by the owner to no more than 5% of the contract sum (GBL §756-c). Previously, a contractor could submit a final invoice only “upon the performance of all the contractor’s obligations under the contract,” and retainage was limited to “a reasonable amount” mutually agreed to by the parties.

While these amendments present a drastic and detrimental change in law both to owners and general contractors, the Prompt Payment Act has a far-reaching savings clause allowing the parties’ construction contract to supersede these and certain other provisions of the Act.

GBL §756-a expressly states:
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.

The exceptions to the supremacy of the “terms and conditions of a construction contract” are found in GBL §757, entitled Void Provisions, and consist of provisions of contracts (1) making the contract subject to the laws of another state or requiring dispute resolution in another state; (2) prohibiting a contractor from suspending performance for the failure of the owner to make prompt payment; (3) denying the use of expedited arbitration to one or both parties under GBL §756-b; and (4) varying certain payment provisions under GBL §756-a [3] and remedies for nonpayment under GBL §756-b.

Contract provisions dealing with the timing of the submission of a final invoice (GBL §756-a [2][a]) and the amount of retainage which can be withheld (GBL §756-c) are not included in the list of Void Provisions under GBL §757 and, in our view, contractual provisions to the contrary will supersede the provisions of the Act. Owners and general contractors are, however, well advised to include detailed provisions in their contracts for the withholding, reduction and release of retainage as well as the procedures for the review and approval of interim and final applications for payment.

For more information on the topic discussed, contact:

• Kenneth M. Block  |  block@thsh.com  |  212-508-6790