A3174

An Act concerning the prompt payment of construction contracts and amending P.L.1991, c.133.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 1 of P.L.1991, c.133 (C.2A:30A-1) is amended to read as follows:

1. As used in this act:

"[General] Prime contractor" means a person who contracts with an owner to improve real property.

"Improve" means: to build, alter, repair or demolish any structure upon, connected with, on or beneath the surface of any real property; to excavate, clear, grade, fill or landscape any real property; to construct driveways and private roadways on real property; to furnish construction related materials, including trees and shrubbery, for any of the above purposes; or to perform any labor upon a structure, including any design, professional or skilled services furnished by an architect, engineer, land surveyor or landscape architect licensed or registered pursuant to the laws of this State.

"Structure" means all or any part of a building and other improvements to real property.

"Owner" means any person, including any public or governmental entity, who has an interest in the real property to be improved and who has contracted with a [general] prime contractor for such improvement to be made. "Owner" shall be deemed to include any successor in interest or agent acting on behalf of an owner.

"Prime rate" means the base rate on corporate loans at large United States money center commercial banks.

"Real property" means the real estate that is improved upon or to be improved upon.

"Subcontractor" means any person who has contracted to furnish labor, materials or other services to a [general] prime contractor in connection with a contract to improve real property.

"Subsubcontractor" means any person who has contracted to furnish labor, materials or other services to a subcontractor in connection with a contract to improve real property.

(cf: P.L.1991, c.133, s.1)

2. Section 2 of P.L.1991, c.133 (C.2A:30A-2) is amended to read as follows:

2. a. If a prime contractor has performed in accordance with the provisions of a contract with the owner and the billing for the work has been approved and certified by the owner or the owner’s authorized approving agent, the owner shall pay the amount due to the prime contractor for each periodic payment, final payment or retainage monies not more than 20 calendar days after the billing date, which for a periodic billing, shall be the periodic billing date specified in the contract. The billing shall be deemed approved and certified 10 days after the owner receives it unless the owner provides, before the end of the 10-day period, a written statement of the amount withheld and the reason for withholding payment.

b. If a subcontractor or subsubcontractor has performed in accordance with the provisions of [his] its contract with the [general] prime contractor or subcontractor and the work has been accepted by the owner, the owner’s authorized approving agent, or [general] the prime contractor, as applicable, and the parties have not otherwise agreed in writing, the prime contractor shall pay to [his] its subcontractor and the subcontractor shall pay to [his] its subsubcontractor within 10 calendar days of the receipt of each periodic payment, final payment or receipt of retainage monies, the full amount received for the work of the subcontractor or subsubcontractor based on the work completed or the services rendered under the applicable contract. In the case of ongoing work on the same project for which partial payments are made, the amount of money owed for work already completed shall only be payable if the subcontractor or subsubcontractor is performing to the satisfaction of the prime contractor or subcontractor, as applicable.

c. If a payment due pursuant to the provisions of this section is not made in a timely manner, the delinquent party shall be liable for the amount of money owed under the contract, plus interest at a rate equal to the prime rate plus 1%. Interest on amounts due pursuant to this section shall be paid to the prime contractor, subcontractor or subsubcontractor for the period beginning on the day after the required payment date and ending on the day on which the check for payment has been drawn.

d. Any prime contractor, subcontractor or subsubcontractor who is not paid as required by this section may, after providing seven calendar days’ written notice to the party failing to make the required payments, suspend performance of a construction contract, without penalty for breach of contract, until the payment required pursuant to this section is made.

e. (1) The rights, remedies or protections provided by this section for prime contractors, subcontractors and subsubcontractors shall be in addition to other remedies provided pursuant to any other provision of State law. To the extent that the provisions of this section provide greater rights, remedies or protections for prime contractors, subcontractors and subsubcontractors than other provisions of State law, the provisions of this section shall supersede those other provisions.

(2) No provision of this section shall be construed as restricting in any way the rights or remedies provided by any other applicable State or federal law to an owner who is a resident homeowner or purchaser with respect to the real property being improved.

f. All contracts for the improvement of structures entered into after the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill) between owners, prime contractors, subcontractors or subsubcontractors shall provide that disputes regarding whether a party has failed to make payments required pursuant to this section shall be submitted to a process of binding arbitration under the expedited rules and guidelines of the American Arbitration Association. Arbitration required by this section shall not apply to disputes concerning the bid solicitation or award process, or to the formation of contracts or subcontracts. In any action or arbitration brought to collect payments or resolve disputes pursuant to this section, the action or arbitration shall be conducted inside of this State and the prevailing party shall be awarded reasonable costs and attorney fees.

(cf: P.L.1991, c.133, s.2)

3. This act shall take effect immediately, but shall not apply to contracts for the improvement of structures entered into before the effective date.

STATEMENT

This bill provides procedures and remedies for prime contractors, subcontractors and subsubcontractors who are not paid in a timely way in connection with a public or private construction contract.

If a prime contractor performs in accordance with a construction contract and the billing for the work has been approved and certified by the owner, the bill, requires the owner to pay the amount due to the prime contractor each periodic payment, final payment or retainage monies not more than 20 calendar days after the billing date. The billing is deemed approved and certified 10 days after the owner receives it unless the owner provides, before the end of the 10-day period, a written statement of the amount withheld and the reason for withholding payment.

The bill provides that if payments are late, the project owner is liable for the amount of money owed under the contract, plus interest at a rate equal to the prime rate plus 1%. Current law establishing that liability applies it to contractors and subcontractors, but not owners.

The bill permits any prime contractor, subcontractor or subsubcontractor who is not paid as required to suspend performance of a construction contract, after giving seven calendar day’s written notice to the party failing to make the required payments, without penalty for breach of contract, until the required payment is made.

The bill, requires all construction contracts between owners, prime contractors, subcontractors or subsubcontractors entered into after the effective date of the bill to provide that disputes regarding whether a party has failed to make required payments be submitted to binding arbitration under the expedited rules of the American Arbitration Association. Arbitration required by the bill would not apply to disputes concerning the bid solicitation or award process, or to the formation of contracts or subcontracts. The bill requires that actions and arbitrations brought to collect payments or resolve disputes pursuant to the bill be conducted inside of this State and that the prevailing party be awarded reasonable costs and attorney fees.

The bill specifies that no provision of the bill shall be construed as restricting the rights or remedies provided by any other applicable State or federal law to an owner who is a resident homeowner or purchaser with respect to the real property being improved.

The rights, remedies or protections provided by the bill are in addition to other remedies provided under any other State law. To the extent that the bill’s provisions provide greater rights, remedies or protections for prime contractors, subcontractors and subsubcontractors than other State laws, the provisions of the bill supersede the other laws. At the same time, the bill specifies that it does not restrict any rights or remedies provided to owners under any other State or federal law.