New York has made changes to its Prompt Payment Act (N.Y. Gen. Bus. Law §756)

Legislation, which Gov. Kathy Hochul signed into law on November 17, 2023, provides that:

• retainage on private construction projects is capped at 5%; and
• a contractor may submit a final invoice for the full amount of retainage upon achieving substantial completion.

The new law applies to all private construction projects in New York where the contract sum exceeds $150,000. The law is intended to reduce delays occurring in the release of retainage on private construction jobs that have met "substantial completion" requirements.

First, the law amended N.Y. General Business Law §756-c so that an owner may retain no more than 5% of the contract sum as retainage. Previously, this statute permitted an owner to retain “a reasonable amount” of the contract sum as retainage, and permitted contractors and subcontractors to retain any “reasonable amount . . . so long as the amount does not exceed the actual percentage retained by the owner.” Now, all parties (owners, contractors, and subcontractors) are limited to retaining “no more than five per centum” of the contract sum. This is a significant shift in the law, as the statute does not permit parties to “contract around” the statutory requirement limiting retainage to 5% of the contract sum.

If an owner, contractor or subcontractor fails to release retainage as required by the statute, each shall be subject to the payment of interest at 1% per month on the date retention was due and owing.

Second, the law amended N.Y. General Business Law §756-a to state that a contractor can submit a final invoice for payment “upon reaching substantial completion, as such term is defined in the contract or as it is contemplated by the terms of the contract.” Previously, the law stated that the final invoice could be submitted “upon the performance of all the contractor’s obligations under the contract.

However, the second portion of Section §756-c, which was not revised, provides that “Retainage shall be released by the owner to the contractor no later than 30 days after the final approval of the work under the contract. Thus, although a contractor can submit a final payment invoice upon substantial completion, the statue establishes a maximum release period of retainage of 30 days after final approval.

In light of these changes to New York law, which take effect immediately and apply to contracts entered into on or after November 17, 2023, you may wish to consult your construction attorneys or the authors of this article before negotiating contract provisions concerning these issues.

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