CORNERSTONE - The Associated General Contractors of New York ...

18
Several years ago, I was called in
to facilitate partnering on a public
school project in the Southern
Tier. Actually, I was called by the
school’s architect and attorney to discuss
liquidated damages they were
contemplating (justifiably so) a very
large daily LD on a medium sized project
with multiple primes that was to be
completed over the summer. Having
convinced them to engage in Partnering
as a better means of completing the
project on time, we began with a workshop.
In the course of the workshop, it
became clear that that issue of payment
would be one of the keys to success of
the project. The owner was convinced
of the value of allowing requisitions
Payment on Construction in
By: Joe Hogan, VP Building Services
every two weeks. When the contractors
asked how soon they could expect
payment upon submitting the requisition,
the owner immediately responded
with a question of his own. “How soon
will you pay your subs after the District
pays you?” was the query to which the
contractors (almost in chorus) responded,
“How quickly would you like us to
pay them?” The resulting plan was to
pay the primes in seven days with the
proviso that the primes would pay their
subs within 48 hours after that. This
was an owner and a team that understood
the value of cash flow as the life
blood of a project. While this was not
the only reason for a great success of
this project, it was certainly a major
factor.
There are few issues of greater importance
on a construction project than
those related to payment. In New York
State, there are rules/laws
that must be considered
for both public and private
work. Moreover,
there are basic rules of
industry practice, equity
and good sense that must
be applied.
The Laws - Public Work
Section 106b of General
Municipal Work
sets forth the payment
requirements for Local
Governments/Municipal
Corporations and School
Districts for both Building
and Civil/Highway
work. These owners are
required to pay the contractors,
within 30 days
of the requisition, the
approved amount less
retainage. (Note: In rare
cases such as with Towns,
45 days is allowed) The
30 day clock starts with
the formal, non pencil
copy, submission to
the owner or his designated agent. If,
therefore, the contract calls for payment
requisitions to be submitted to
the Architect or Construction Manager/
Agent, that is when the 30 day clock
starts ticking - not when that entity
submits the requisition to the owner.
If the payment is not made within that
timeframe, interest is due and owing to
the contractor for each day the payment
is late. While rare, some enlightened
owners automatically pay that interest.
For most, however, you have to make
claim for it. Section 139f of State Finance
Law governs most State agencies,
public benefit corporations and
public authorities. It is nearly identical
to the provisions of Section 106b with
one key exception – the 30 day clock
does not start ticking until the payment
requisition is delivered to the owner.
For both sets of law, no more than 5%
retainage may be held on each progress
payment excepting that when performance
and payment bonds are not required
(Section 137 of State Finance
Law demands at least payment bonds
for projects over $200,000), 10% retainage
may be held. Upon substantial
completion, the law states that the
owner is to promptly pay the remaining
contract amount less two times the
punch list and an amount necessary to
satisfy any outstanding claims, liens or
judgements. While the law does not
call for further retainage to be held,
there are some (including a judge 26
years ago) that believe retainage to be
a punch list item and, therefore, it can
be held beyond substantial completion
or even final completion. I view that
argument as a bit silly. Not only does it
fail to understand what retainage is for,
it sets up a circular argument the theoretically
creates a situation where the
project is never truly complete. Punch
list items are to be released as they are
completed. Once they are all completed,
final completion occurs.