New York law provides special protections to contractors to ensure that they get paid – mechanic’s lien rights, trust fund rights, and prompt payment rights.
New York’s Prompt Pay Act (“PPA”) is covered under General Business Law § 756 et. seq.
The PPA’s stated purpose:
It is the policy and purpose of this article to expedite payment of all monies owed to those who perform contracting services pursuant to construction contracts.
The PPA covers private projects involving total construction costs of $150,000 or more. It covers only large residential construction projects – projects exceeding 4,500 square feet. It excludes all public works projects.
As stated in the PPA:
The parties to a construction contract may, by mutual agreement, establish a billing cycle for the submission of invoices.
A contractor shall be entitled to invoice the owner for interim payments at the end of the billing cycle.
An owner shall approve or disapprove all or a portion of such invoice within twelve business days.
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 . . . 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.
Payment of an interim or final invoice shall be due from the owner not later than thirty days after approval of the invoice.
If any interim or final payment to a contractor is delayed beyond the due date . . . the owner shall pay the contractor interest beginning on the next day at the rate of one percent per month.
The aggrieved party may refer the matter . . . to the American Arbitration Association for an expedited arbitration pursuant to the Rules of the American Arbitration Association.
Contract bills owner on a regular basis
Owner has twelve days to approve bill
Owner can disapprove a bill for defective work and other contractor breaches
Owner must pay bill within thirty days of approval
Failure to pay results in interest at 1% per month
The Contractor has a right to arbitration if the Contractor so chooses.