New York Amends “Prompt Payment Act” to Limit Retainage

On November 17, 2023, Governor Kathy Hochul signed Senate Bill 3539, which amended Section 756-a and Section 756-c of the New York General Business Law (commonly known as the Prompt Payment Act), which applies to all private commercial construction projects having a value of $150,000 or more. The bill is intended to ensure timely payments to contractors as well as limit the amount of retainage that can be withheld.

As amended, Section 756-a now provides that a contractor can submit its final invoice for payment to the owner upon substantial completion, as that term is defined in the construction contract or as it is contemplated by the terms of the contract. This is a significant departure from the prior version of the law which did not allow the contractor to submit a final invoice until the contractor had performed all of its obligations under the contract.

Under the amendment to Section 756-c, an owner may retain no more than five percent of the contract sum as retainage.  A contractor and subcontractor are also limited to withholding no more than five percent retainage and “in no case shall retainage exceed the actual percentage retained by the owner.” Retainage shall be released by the owner to the contractor no later than 30 days after the final approval of the work under the construction contract. Failure of the owner to release retainage (or of the contractor or subcontractor to release a proportionate amount of retainage to the relevant parties) shall subject the owner, contractor or subcontractor, as the case may be, to the payment of interest at the rate of 1% per month from the date that retention was due.

This amendment to the Prompt Payment Act takes effect as of November 17, 2023 and applies to private commercial construction contracts entered into on or after this date.

If you have any questions about this alert, please contact James Lotito, Head of New York Construction Practice; or another member of the firm’s Construction Practice in New York.

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