On September 1, 2006, Governor Joe Corzine signed legislation formalizing prompt payment of construction contracts to prime contractors by landowners in both the private and public sectors. The government believes prompt payment to prime contractors will result in subcontractors and all other laborers being compensated more quickly for work each performed. Prime contractors have been held to the identical standards in paying those they subcontract work out to. The government feels that in the interest of a fair playing field, property owners be held to the same standards. Such legislation is the government’s attempt in helping to foster a more efficient process in property development.
The legislation states that work billed by the prime contractor to the property owner, or the property owner’s designated agent, will be due within thirty days from the date billed. If on the thirty-first day a property owner has failed to remit the required payment, they will be liable for the unpaid balance plus interest will begin to accrue on the unpaid balance at a rate of prime plus one percent. Interest will continue to accrue until the prime contractor has been paid in full.
Requirements for 30-Day Payment
However, the thirty day time limit is unenforceable unless two prerequisites are met. First, the work completed must be in accordance with the construction contract agreed upon by both parties. Second, the property owner must approve and certify all work delineated on the billing statement. Be advised, the billing statement will be deemed accepted by the property owner unless a written statement of monies withheld, and reasons for such withholdings, is received by the prime contractor within twenty days of the billing date. Upon written notice being given to the defaulting property owner seven days after initial default, contractors may suspend performance of a construction contract without facing the penalty of breach of contract. However, if a written statement was given within the 20 day time frame and the defaulting party is making a good faith effort to remedy the situation, a contractor is not entitled to suspend performance.
The remedies and rights provided for in this new bill are not the only avenues of recourse a prime contractor has in dealing with a defaulting property owner. This legislation does not seek to limit a prime contractor’s legal recourse, but serves as an addition to those remedies currently available within established State law. Further, the remedies and rights provided for in this new legislation will supersede any provisions of existing State law which contradict and/or conflict such remedies and rights. Lastly, any civil action which is brought to collect payments in accordance with this legislation must be conducted within the State and the prevailing party shall also be entitled to reasonable costs and attorney’s fees. Those who support this legislation see the creation of a protective shield for those small business owners who go unpaid for work they perform. But whether the intent of the legislation is realized is another matter. It would seem that this bill will be extremely beneficial to those contractors involved in larger scale projects in which the property owner is seeking an economic benefit. However, those contractors who survive on smaller scale projects, which are usually done for luxury and not economic necessity, may not reap the same benefits. In a stagnate housing market, common sense would seem to dictate that the average homeowner may delay having work performed fearing the repercussions previously discussed in this article.