756-a. Obligations. 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. 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) 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.
(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 therefor 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.
Last modified: February 3, 2019