Governor Hochul signed Senate Bill 3539, amending Section 756-a and Section 756-c of the New York General Business Law – better known as the Prompt Payment Act (“PPA”). Because the law can override portions of construction contracts dealing with payment, suspension of work, and dispute resolution, it is critical that construction companies and contractors understand the ramifications of the changes that affect all contracts entered into on and after November 17, 2023. Even inadvertent violations of the law can create liability and lead to penalties and interest accrual.

The biggest change enacted by the amendment is that on any contract for private commercial projects, entered on or after November 17, 2023 and in excess of $150,000.00, an owner can hold no more than 5% of a project’s contract sum as retainage. This 5% maximum limitation is extended to the amount that contractors and subcontractors can hold.

Further, the amended Section 756-a now allows contractors to submit their final invoice for payment to the owner upon achieving substantial completion (as such term is defined in the construction contract). This is a significant change from the prior PPA language that stated that a contractor could not submit a final invoice until it had performed all of its obligations under the construction contract.

The PPA continues to state that an owner must release retainage to the contractor no later than 30 days after the final approval of the work as defined by the construction contract, which means contracts can still specify that such portion shall become due no later than 30 days after the contractor achieves final completion. Further, the PPA’s language that an owner’s failure to release retainage – or, likewise, a contractor’s or subcontractor’s failure – will result in interest accruing at a rate of 1% per month from the due date.

Notwithstanding all of these amendments, Section 756-a of the PPA still allows parties to draft contract terms and conditions that may supersede the PPA; provided that the statute does not explicitly preclude such terms and conditions. As such, while we advise owners and contractors to promptly review their construction contracts and billing practices on New York private projects, we also strongly recommend that they consult with legal counsel when reviewing and negotiating such provisions going forward.