NY’s Prompt Payment Act Amendment: Final Invoicing at Substantial Completion and 5% Retainage Cap in Private Construction Contracts

On November 17, 2023, Governor Kathy Hochul signed into law Senate Bill 3539, which amended Section 756-a and Section 756-c of the New York General Business Law Article 35-E Construction Contracts, commonly known as the Prompt Payment Act, with respect to payment and retainage in construction contracts.

The Prompt Payment Act applies to construction contracts for privately owned commercial (and certain residential) projects having an aggregate construction cost equal to or exceeding One Hundred Fifty Thousand Dollars ($150,000).

As amended, Section 756-a now provides that “A contractor shall be entitled to submit a final invoice for payment in full upon reaching substantial completion, as such term is defined in the contract or as it is contemplated by the terms of the contract”, rather than at final completion.

As amended, Section 756-c now mandates that an owner shall not withhold as retainage more than five percent (5%) of the contract sum, and a contractor or subcontractor are also limited to withholding no more than five percent (5%) for retainage, and “in no case shall retainage exceed the actual percentage retained by the owner”.

The other provisions of Section 756-c (which were not modified by the amendment) further require that retainage must be released by the owner to the contractor no later than thirty (30) days following final approval of the work. Any failure of the owner to release retainage to the contractor as required by the law or any failure of the contractor or subcontractor to release a proportionate amount of retainage to the relevant parties after receipt of retainage from the owner will subject the withholding party to the payment of interest at the rate of one percent (1%) per month of the amount retained from the date such retainage was due and owing.

The amendment to the law applies to such construction contracts entered into on or after the effective date of November 17, 2023.

Summary of Practical Considerations

• Invoice Timing: Contractors can invoice in full upon substantial completion, not just at final completion.
• Retainage Limits: Owners limited to 5% retainage; contractors and subcontractors also capped at 5%.
• Retainage Release: Owners must release retainage within 30 days of final work approval.
• Interest Payments: Failure to release retainage may lead to 1% monthly interest on the owed amount.
• Applicability: The law applies to construction contracts entered into on or after November 17, 2023.
• Compliance : Owners and contractors should review their construction contract forms to ensure they are in compliance with this new law.

Contact US

For more information or if you have any questions regarding the amendment to the law or would like to discuss any construction issues, please reach out to your BBG attorney of record or contact us here.

Written by: Robert S. Marshall, Jr., Partner in the Firm’s Construction Law Department.