NY General Business Law

CONSTRUCTION CONTRACTS

Article 35-E

       
Section 
        756.   Definitions.
        756-a. Obligations.
        756-b. Remedies.
        756-c. Retention.
        756-d. Exceptions for failure of lender to disburse funds.
        756-e. Exceptions for lower Manhattan reconstruction.
        757.   Void provisions.
        758.   Severability.

  S 756. Definitions. As used in this article: 1. "Construction
contract" means a written or oral agreement for the construction,
reconstruction, alteration, maintenance, moving or demolition of any
building, structure or improvement, or relating to the excavation of or
other development or improvement to land, and where the aggregate cost
of the construction project including all labor, services, materials and
equipment to be furnished, equals or exceeds two hundred fifty thousand
dollars. For the purposes of this article a construction contract shall
not include any such contract made and awarded by the state, any public
department, any public benefit corporation, any public corporation or
official thereof, or a municipal corporation or official thereof for
construction, reconstruction, alteration, repair, maintenance, moving or
demolition of any public works project nor any contract with a
contractor or subcontractor which is part of such project; or any such
contract the purpose of which is the construction, reconstruction,
alteration, repair, maintenance, moving or demolition of an individual
one, two or three family residential dwelling or a residential tract
development of one hundred fifty or less one or two family dwellings, or
any residential construction project where the aggregate size of such
project is nine thousand square feet or less, or any residential project
of fewer than one hundred fifty units which receives financial
assistance from the federal government, the state or a municipal entity
designed for households earning an average of one hundred twenty-five
percent of the housing and urban development agency area median income.
  2. "Contractor" means any person, firm, partnership, corporation,
association, company, organization or other entity, including a
construction manager, or any combination thereof, which enters into a
construction contract with an owner.
  3. "Owner" means any person, firm, partnership, corporation, company,
association or other organization or other entity, or a combination of
any thereof, (with an ownership interest, whether the interest or estate
is in fee, as vendee under a contract to purchase, as lessee or another
interest or estate less than fee) that causes a building, structure or
improvement, new or existing, to be constructed, altered, repaired,
maintained, moved or demolished or that causes land to be excavated or
otherwise developed or improved.
  4. "Subcontractor" means any person, firm, partnership, corporation,
company, association, organization or other entity, or any combination
thereof, which is a party to a contract with a contractor or another
subcontractor to perform a portion of work pursuant to a construction
contract.
  5. "Material supplier" means any person, firm, partnership,
corporation, company, association, or other organization or entity, or
any combination thereof, which is party to a contract with an owner,
contractor or subcontractor, for the provision of construction materials
and/or equipment necessary to the completion of a construction contract.
  6. "Notice." Any notice by the owner, contractor or subcontractor
under this article shall be sent by facsimile and reputable overnight
courier and shall be deemed effective on the date sent.

  S 756-a. Obligations. 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.
  1. Billing cycle. The parties to a construction contract may, by
mutual agreement, establish a billing cycle for the submission of
invoices requesting payment for work performed pursuant to a
construction contract. In the absence of an agreement by the parties as
to the billing cycle, the billing cycle shall be the calendar month
within which the work is performed.
  2. Invoices. (a) A contractor shall be entitled to invoice the owner
for interim payments at the end of the billing cycle. A contractor shall
be entitled to submit a final invoice for payment in full upon the
performance of all the contractor`s obligation under the contract.
  (i) Upon delivery of an invoice and all contractually required
documentation, an owner shall approve or disapprove all or a portion of
such invoice within twelve business days. Owner approval of invoices
shall not be unreasonably withheld nor shall an owner, in bad faith
disapprove all or a portion of an invoice. If an owner declines to
approve an invoice or a portion thereof, it must prepare and issue a
written statement describing those items in the invoice that are not
approved. An owner may decline to approve an invoice or portion of an
invoice for:
  (1) Unsatisfactory or disputed job progress;
  (2) Defective construction work or material not remedied;
  (3) Disputed work materials;
  (4) Failure to comply with other material provisions of the
construction contract;
  (5) Failure of the contractor to make timely payments for labor
including collectively bargained fringe benefit contributions, payroll
taxes and insurance, equipment and materials, damage to the owner, or
reasonable evidence that the construction contract cannot be completed
for the unpaid balance of the construction contract sum; or
  (6) Failure of the owner`s architect to certify payment for any or all
of the reasons set forth in this section so long as the reasons are
included in the owner`s written statement of disapproval.
  (ii) Upon delivery of an invoice and all contractually required
documentation, a contractor or subcontractor shall approve or disapprove
all or a portion of such invoice within twelve business days. Contractor
and subcontractor approval of invoices shall not be unreasonably
withheld nor shall a contractor or subcontractor, in bad faith,
disapprove all or a portion of an invoice. Nothing in this section shall
prohibit the contractor or subcontractor, at the time of application to
the owner or contractor, from withholding such application to the owner
or contractor for payment to the subcontractor or material supplier for:
  (1) Unsatisfactory or disputed job progress;
  (2) Defective construction work or material not remedied;
  (3) Disputed work;
  (4) Failure to comply with other material provisions of the
construction contract; or
  (5) Failure of the subcontractor to make timely payments for labor
including collectively bargained fringe benefit contributions; payroll
taxes and insurance, equipment and materials, damage to contractor or
another subcontractor or material supplier, or reasonable evidence that
the subcontract cannot be completed for the unpaid balance of the
subcontract sum.
  (b) Nothing in this subdivision shall authorize the withholding of an
application to the owner or contractor for the payment to a
subcontractor or material supplier when due to a delay in job progress
by the owner, contractor or another subcontractor or material supplier
other than the applicant or applicant`s subcontractor or material
supplier.
  3. Payment. (a) The owner`s payment of a contractor`s interim and
final invoices shall be made on the basis of a duly approved invoice of
work performed and the material supplied during the billing cycle.
  (i) Unless the provisions of this article provide otherwise, the owner
shall pay the contractor strictly in accordance with the terms of the
construction contract.
  (ii) Unless otherwise agreed to by the parties, payment of an interim
or final invoice shall be due from the owner not later than thirty days
after approval of the invoice.
  (iii) If payment by the owner is contingent upon lender approval,
payment of a contractor`s interim or final invoice or the amount of loan
proceeds disbursed by the lender for payment of the contractor`s interim
or final invoice shall be due from the owner seven days after receipt by
the owner of good funds except where the provisions of section seven
hundred fifty-six-d of this article applies.
  (iv) An owner may withhold from an interim payment only an amount that
is sufficient to pay the costs and expenses the owner reasonably expects
to incur in order to cure the defect or correct any items set forth in
writing pursuant to subparagraph (i) of paragraph (a) of subdivision two
of this section, or in the alternative, to withhold an amount not to
exceed the line item amount appearing in the agreed schedule of values
together with any change orders, additions and/or deletions, if such
schedule has been previously submitted, and/or an amount sufficient to
cover liquidated damages as established in an agreed upon schedule in
the construction contract.
  (b) The contractor or subcontractor`s payment of subcontractor or
material supplier`s interim or final invoice shall be made on the basis
of a duly approved invoice of the work performed and materials supplied
during the billing cycle.
  (i) Unless the provisions of this article provide otherwise, the
contractor or subcontractor shall pay the subcontractor strictly in
accordance with the terms of the construction contract. Performance by a
subcontractor in accordance with the provisions of its contract shall
entitle it to payment from the party with which it contracts.
Notwithstanding this article, where a contractor enters into a
construction contract with a subcontractor as agent for a disclosed
owner, the payment obligation shall flow directly from the disclosed
owner as principal to the subcontractor and through the agent.
  (ii) When a subcontractor has performed in accordance with the
provisions of its construction contract, the contractor shall pay to the
subcontractor, and each subcontractor shall in turn pay to its
subcontractors, the full or proportionate amount of funds received from
the owner for each subcontractor`s work and materials based on work or
services provided under the construction contract, seven days after
receipt of good funds for each interim or final payment, provided all
contractually required documentation and waivers are received.
  (iii) A contractor or subcontractor may withhold amounts received from
an owner in connection with an interim payment due to a subcontractor or
material supplier only such sums that are sufficient to pay the direct
expenses as are reasonable to correct deficiencies identified pursuant
to subparagraph (ii) of paragraph (a) of subdivision two of this
section, or in the alternative, to withhold an amount not to exceed the
line item amount appearing in the agreed schedule of values, together
with any change order, additions or deletions, if such schedule has been
previously submitted, and/or an amount sufficient to cover liquidated
damages as established in an agreed upon schedule in the construction
contract.
  (iv) If a contractor, after submitting an invoice to an owner under a
construction contract, but before making a payment to a subcontractor or
material supplier for the subcontractor`s or material supplier`s
performance covered by such invoice, discovers that all or a portion of
the payment otherwise due to the subcontractor or material supplier is
subject to withholding from the subcontractor or material supplier in
accordance with the construction contract and the conditions set forth
in subparagraph (ii) of paragraph (a) of subdivision two of this
section, then the contractor shall:
  (1) As soon as practicable upon ascertaining the cause giving rise to
a withholding, but prior to the due date for a subcontractor or material
supplier payment, furnish to the subcontractor or material supplier and
the owner written notice of withholding specifying conditions for
withholding payment and identifying the amount to be withheld; 

  (2) Reduce the subcontractor`s or material supplier`s interim payment
by an amount not to exceed the amount specified in the notice of
withholding; and
  (3) Pay the subcontractor or material supplier amounts withheld within
seven days after correction of the identified subcontractor or material
supplier performance deficiency and receipt of all required
documentation and waivers, unless the funds therefore must be obtained
from the owner`s next interim payment due to a reduction in the
contractor`s billing directly resulting from the subcontractor`s or
material supplier`s performance deficiency identified in the notice of
withholding.
  (c) A written notice of any withholding under this subdivision shall
be issued to a subcontractor or material supplier specifying:
  (i) The amount to be withheld;
  (ii) The specific causes for withholding under the terms of the
construction contract and pursuant to this subdivision;
  (iii) The remedial actions necessary to be taken by the subcontractor
or material supplier in order to receive payments of the amounts
withheld; and
  (iv) The documentation and waivers required.
    4. Notice. A contractor or subcontractor shall disclose to a
subcontractor, at the time the construction subcontract is entered into,
the due date for receipt of payments to the contractor or subcontractor
from the owner or the contractor as the case may be. If a contractor or
subcontractor fails to accurately disclose the due date to a
subcontractor, the contractor or subcontractor shall be obligated to pay
the subcontractor as though the due dates established in paragraph (a)
of subdivision three of this section were met by the owner. In addition,
upon written request of a subcontractor, the owner shall provide notice
to such subcontractor within five days of making any interim or final
payment to the contractor. The subcontractor`s request shall remain in
effect for the duration of the subcontractor`s work on the project.

  S 756-b. Remedies. 1. (a) If any interim or final payment to a
contractor is delayed beyond the due date established in paragraph (a)
of subdivision three of section seven hundred fifty-six-a of this
article, the owner shall pay the contractor interest beginning on the
next day at the rate of one percent per month or fraction of a month on
the unpaid balance, or at a higher rate consistent with the construction
contract.
  (b) Notwithstanding any contrary agreement, if any interim or final
payment to a subcontractor is delayed beyond the due date established in
paragraph (b) of subdivision three of section seven hundred fifty-six-a
of this article the contractor or subcontractor shall pay its
subcontractor interest, beginning on the next day, at the rate of one
percent a month or fraction of a month on the unpaid balance, or at a
higher rate consistent with the construction contract.
  2. (a) (i) If an owner fails to approve or disapprove an invoice
within the time limits established in subparagraph (i) of paragraph (a)
of subdivision two of section seven hundred fifty-six-a of this article,
or to pay the contractor the undisputed invoice amount within the time
limits provided by paragraph (a) of subdivision three of section seven
hundred fifty-six-a of this article, the contractor may suspend
contractually required performance, only after providing the owner
written notice and an opportunity to cure consistent with subparagraph
(ii) of this paragraph.
  (ii) A contractor intending to suspend performance on the construction
contract for failure of the owner to make timely payments or approvals
within the time limits provided by this article must provide the owner
written notice at least ten calendar days before the contractor`s
intended suspension. Such notice shall:
  (A) inform the owner that payment for undisputed invoice amounts have
not been received; and
  (B) state the intent of the contractor to suspend performance for
non-payment.
If after the tenth calendar day following written notice the owner has
not cured the deficiency, the contractor may suspend performance.
  (iii) A contractor shall not be deemed in breach of the construction
contract for suspending performance pursuant to this section.
  (b)(i) A subcontractor may suspend contractually required performance
if any or all of the occurrences outlined in clauses (A), (B) and (C) of
this subparagraph occur and only after providing written notice and an
opportunity to cure consistent with subparagraph (ii) of this paragraph:
  (A) If an owner fails to make timely payments for undisputed invoices
within the time limits established by subdivision three of section seven
hundred fifty-six-a of this article for the subcontractor`s work and the
contractor also fails to pay the subcontractor for the approved work;
  (B) If an owner pays the contractor within the time limits established
by subdivision three of section seven hundred fifty-six-a of this
article for undisputed invoices for work performed by the subcontractor
but the contractor fails to make payment to the subcontractor within the
time frames established by this article for the subcontractor`s work;
  (C) If an owner fails to approve or disapprove a portion of
contractor`s invoice for work performed by the subcontractor within the
time limits established in paragraph (a) of subdivision two of section
seven hundred fifty-six-a of this article;
  (D) If a contractor or subcontractor fails to approve or disapprove a
subcontractor`s invoice within the time limits established in paragraph
(b) of subdivision three of section seven hundred fifty-six-a of this
article; or
  (E) If an owner fails to approve portions of the contractors` billing
for work performed by the subcontractor within the time limits
established by this article and the reasons for such failure are not the
fault of or directly related to the subcontractor`s work.
  (ii) A subcontractor intending to suspend performance for failure to
receive timely payments within the time limits established pursuant to
this article must provide both the owner and the contractor written
notice at least ten calendar days before the subcontractor`s intended
suspension. Such notice shall:
  (A) inform the owner and the contractor that payment for undisputed
billing amounts have not been received; and
  (B) state the intent of the contractor to suspend performance for
non-payment.
  If after the tenth calendar day following written notice either the
owner or the contractor has not cured the deficiency, the subcontractor
may suspend performance.
  (iii) A subcontractor shall not be deemed in breach of the
construction contract for suspending performance pursuant to this
section.
  (iv) (A) A contractor or subcontractor that suspends performance as
provided in this section shall not be required to furnish further labor,
materials or services until the contractor or subcontractor is paid the
undisputed invoice amount at the time period for completion as provided
in the construction contract. All of the time frames established within
the construction contract of a contractor or subcontractor shall be
extended for the length of time performance was suspended. Payment of
documented actual costs incurred for re-mobilization resulting from
suspension shall be negotiated between the parties.
  (B) In the event of suspension of a construction contract, as provided
in this article, all materials, equipment, tools, construction equipment
and machinery located at the job site shall remain the sole and
exclusive property of the contractor or subcontractor and shall be
removed from the job site, if necessary, within a reasonable period of
time. Access to the contractor`s or subcontractor`s property shall not
be unreasonably withheld.

  S 756-c. Retention. By mutual agreement of the relevant parties an
owner may retain a reasonable amount of the contract sum as retainage. A
contractor or subcontractor may also retain a reasonable amount for
retainage so long as the amount does not exceed the actual percentage
retained by the owner. Retainage shall be released by the owner to the
contractor no later than thirty days after the final approval of the
work under a construction contract. In the event that an owner fails to
release retainage as required by this article, or the contractor or
subcontractor fails to release a proportionate amount of retainage to
the relevant parties after receipt of retainage from the owner, the
owner, contractor, or subcontractor, as the case may be, shall be
subject to the payment of interest at the rate of one percent per month
on the date retention was due and owing.

  S 756-d. Exceptions for failure of lender to disburse funds. The date
of payment required by the owner, the contractor and/or subcontractor
pursuant to section seven hundred fifty-six-a of this article, shall be
extended to the seventh day after the owner, contractor or
subcontractor, as the case may be, receives loan proceeds necessary to
make such payment in the event that:
  1. the owner, contractor or subcontractor, as the case may be, has
obtained a loan intended to pay for all or part of the construction
contract;
  2. the owner, contractor or subcontractor, as the case may be, has
timely requested disbursement of proceeds from that loan; and
  3. the lender is legally obligated to disburse such proceeds to the
owner, contractor or subcontractor, as the case may be, but has failed
to do so in a timely manner.

  S 756-e. Exceptions for lower Manhattan reconstruction. The provisions
of this article shall not apply to any construction contracts for the
reconstruction, alteration, moving or demolition of any building,
structure or improvement, or relating to the excavation of or any
development or improvement to land in and around the world trade center
necessitated by the September eleventh, two thousand one terrorist
attack on such center.

  S 757. Void provisions. The following provisions of construction
contracts shall be void and unenforceable:
  1. A provision, covenant, clause or understanding in, collateral to or
affecting a construction contract, with the exception of a contract with
a material supplier, that makes the contract subject to the laws of
another state or that requires any litigation, arbitration or other
dispute resolution proceeding arising from the contract to be conducted
in another state.
  2. A provision, covenant, clause or understanding in, collateral to or
affecting a construction contract stating that a party to the contract
cannot suspend performance under the contract if another party to the
contract fails to make prompt payments under the contract.

  S 758. Severability. If any clause, sentence, paragraph, subdivision
or part of this article, or the application thereof to any person or
circumstance, shall be adjudged by any court of competent jurisdiction
to be invalid or unconstitutional, such judgment shall not affect,
impair or invalidate the remainder thereof, but shall be confined in its
operation to the clause, sentence, paragraph, subdivision or part of
this article, or in its application to the person or circumstance,
directly involved in the controversy in which such judgment shall have
been rendered.