Retainage on Private Commercial Projects Capped at 5%

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Recently, New York Governor Kathy Hochul signed into law an amendment to General Business Law Article 35-E Construction Contracts (GBL § 756-758), commonly referred to as New York’s Prompt Payment Act, mandating retainage not to exceed 5 percent on all general construction contracts and subcontracts and that retainage must be released within 30 days following final completion of the work. Retainage wrongfully withheld will accrue interest at 1 percent per month. In addition, the amended law permits the contractor to submit a final invoice for the full amount due upon reaching substantial completion, as defined in the construction contract.

The Prompt Payment Act applies to most private construction projects where the total construction cost equals or exceeds $150,000. It does not apply to certain residential construction work. The Act sets minimum obligations and remedies for owners, contractors, and subcontractors and voids certain other contractual provisions. Thus, owners, contractors, and subcontractors should be fully aware of the contents of the Act and legal ramifications of same.

The recent amendment requires retainage not to exceed 5 percent or any lesser amount retained by owner, regardless of the terms of the contract or subcontract. The retainage limitation appears to apply to agreements entered into on or after November 17, 2023. The amendment also permits a contractor to submit a final requisition upon reaching substantial completion, regardless of the terms of the contract.

The Prompt Payment Act applies to most private construction projects where the total construction cost equals or exceeds $150,000. It does not apply to certain residential construction work. The Act sets minimum obligations and remedies for owners, contractors, and subcontractors and voids certain other contractual provisions. Thus, owners, contractors, and subcontractors should be fully aware of the contents of the Act and legal ramifications of same.

The recent amendment requires retainage not to exceed 5 percent or any lesser amount retained by owner, regardless of the terms of the contract or subcontract. The retainage limitation appears to apply to agreements entered into on or after November 17, 2023. The amendment also permits a contractor to submit a final requisition upon reaching substantial completion, regardless of the terms of the contract.

A key provision within the Prompt Payment Act establishes specific time limits for the approval or objection to invoices and the issuance of payments. For example, an owner must approve or dispute all or a portion of an invoice within 12 business days of receipt and also pay the contractor within 30 days after approval, subject to receipt of funds from a lender if the construction is financed. Similarly, contractors and subcontractors must also approve or dispute invoices within 12 business days and make payments within seven days of receipt of payment.   

If a dispute arises over whether a party has complied with the provisions of the Act, the complaining party has the right to submit the matter to expedited arbitration before the American Arbitration Association, regardless of the dispute resolution terms in the applicable contract. This email provides just a brief overview of some portions of the Prompt Payment Act for updated guidance. If you have questions or need guidance, we suggest that you contact your trusted Rosenberg & Estis, P.C. attorney, or either Chip Pierce, Member & Head of the firm’s Construction Department, or Chris Gorman, authors of the above, to discuss an effective strategy tailored to your needs, or to answer any general questions that you may have.