On November 17, 2023, New York State Governor Kathy Hochul signed into law a bill amending certain provisions of the New York Prompt Payment Act (General Business Law, Article 35-E) (the “PPA”).
Depending on how the courts/arbitrators interpret the PPA, the recent amendments (the “Amended Provisions”) could represent a significant change in the law for owners (and general contractors). Specifically, the Amended Provisions:
- permit a contractor to submit a final invoice for payment in full “upon reaching substantial completion” (GBL § 756-a(2)(a)) (by contrast, the pre-amendment statutory provision entitled a contractor to submit a final invoice only “upon the performance of all of the contractor’s obligations under the contract”); and
- limit the amount of retainage an owner may withhold to “no more than” five percent (5%) of the contract sum (GBL § 756-c) (the pre-amendment statutory provision entitled an owner to retain a “reasonable amount” of the contract sum as retainage).
If the terms required by the Amended Provisions cannot be varied, they would obviously present a significant change in the common practice of holding ten percent retainage through substantial completion and of withholding final payment until after final completion.
However, based on the express language of other existing provisions of the PPA, there are strong arguments that, notwithstanding the enactment of the amended statute, owners and contractors may still enter into contracts which contain terms at variance with the Amended Provisions. The PPA includes a broad provision entitling the parties to a construction contract to agree to vary the provisions of the PPA, with certain exceptions. Specifically, GBL § 756-a 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.” (Emphasis added.) The exceptions to the supremacy of the parties’ construction contract as provided in the above-quoted language are set forth in GBL § 757, entitled “Void provisions”, which specifies four categories of construction contract provisions which are “void and unenforceable” as inconsistent with the unalterable requirements of the PPA. Specifically, GBL § 757 voids any construction contract provision which: (1) makes the contract subject to the laws of another state or requires a dispute resolution proceeding arising from the contract to be conducted in another state; (2) prohibits a contractor from suspending performance for the owner’s failure to make prompt payment; (3) denies the use of expedited arbitration to one or both parties under GBL § 756-b; and (4) varies payment provisions under GBL § 756-a(3) and remedies for non-payment under GBL § 756-b.
Significantly, construction contract provisions regarding the two subjects of the Amended Provisions – the timing of the submission of a final invoice and the amount of retainage which can be withheld – are not included in the list of “[v]oid provisions” in GBL § 757 (which section was not altered as part of the recent amendments). Consequently, there is a strong argument that construction contract provisions which are contrary to the Amended Provisions should supersede the Amended Provisions and be enforceable. However, due to their recent enactment, the Amended Provisions have not yet been interpreted by a New York court, so the ultimate effect of the Amended Provisions remains somewhat unclear at this time.
If you have questions about the Amended Provisions, please contact one of our partners: Matthew S. Quinn, at (212) 447-5510 or mquinn@qmlegal.com, Christopher P. McCabe, at (212) 447-5520 or cmccabe@qmlegal.com, Simon Block, at (212) 447-5530 or sblock@qmlegal.com, or Jonathan Krukas, at (212) 447-5560 or jkrukas@qmlegal.com.
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