SENATE STATE MANAGEMENT, INVESTMENT AND FINANCIAL INSTITUTIONS COMMITTEE

STATEMENT TO

SENATE, No. 725

with committee amendments

STATE OF NEW JERSEY

DATED: JUNE 6, 1996

      The Senate State Management, Investment and Financial Institutions Committee reports favorably and with committee amendments Senate, No. 725.

      This bill supplements the "New Jersey Prompt Payment Act" which requires any State agency (including the Legislative branch of State government) that receives or uses goods or services provided under contract with a business concern, other than a public utility, to pay interest on amounts due to the business concern that are not paid on or before the required payment date. Under this bill, if a business concern that is party to such a contract enters into a subcontract with another person to perform part of that contract, the subcontract shall provide for the payment by the contractor of interest on any amount due the subcontractor that is not paid on or before the required payment date. The rate of interest applicable to such late payments shall be the same as the rate established by the State Treasurer with respect to late payments by the State to the contractor, or such higher rate as may be specified in the subcontract.

      This bill also supplements a 1991 law that requires a prime contractor under a construction contract with a State agency to pay interest on any amount due to a subcontractor or supplier that is not, without good cause, timely paid after the contractor has been paid by the State agency. This legislation would similarly require a State agency to pay interest, at the same rate established by the State Treasurer for late payments by the State to a business concern, on late payments to a contractor under a construction contract. The required payment date shall be the date specified in the contract or, if no date is specified, 60 days from the approval of an invoice by the State. The bill also provides that under certain circumstances the State Treasurer shall have the right to waive the interest payment or withhold payment without the accrual of interest. It also specifies that the bill's provisions shall not be construed as permitting the accrual of prejudgment interest in the case of a disputed contract brought pursuant to the "New Jersey Contractual Liability Act."

      Finally, the bill requires that disputes between prime contractors and subcontractors to State contracts shall be submitted to a mandatory alternate dispute resolution process. Each contract between the prime contractor and a subcontractor to a State contract shall contain a provision specifying the alternate dispute resolution process to be used by the parties. Cost of the alternate dispute resolution process shall be shared equally by the parties.

COMMITTEE AMENDMENTS

      Regarding State agency construction contracts, the committee amended the bill to:

      (1) change the required payment date to the date specified in the contract or 60 days from the approval of an invoice if no date is specified in the contract;

      (2) change the amount of interest paid from prime rate plus 1% to the same rate established by the State Treasurer for late payments by the State to a business concern under a State contract;

      (3) provide that under certain circumstances the State Treasurer shall have the right to waive the interest payment or withhold payment without the accrual of interest; and

      (4) provide that the bill's provisions shall not be construed as permitting the accrual of prejudgment interest in the case of a disputed contract brought pursuant to the "New Jersey Contractual Liability Act."

      The committee also amended the bill to provide that disputes between prime contractors and subcontractors to State contracts shall be submitted to a mandatory alternate dispute resolution process. Each contract between the prime contractor and a subcontractor to a State contract shall contain a provision specifying the alternate dispute resolution process to be used by the parties. Cost of the alternate dispute resolution process shall be shared equally by the parties.