When the New York Prompt Payment Act (PPA) was enacted in 2003, it was anticipated that it would have a major and positive impact upon the payment process within the construction industry. Unfortunately, that has not always been the case, and it has actually harmed contractors and subcontractors in many instances. If you are involved in the construction industry, you may have questions about the Act and how it helps or harms you.
If you are an owner, contractor, or subcontractor, you likely have encountered payment disputes on construction projects. That is simply a fact of life if you work in this industry. Unfortunately, most often these disputes lead to expensive litigation. To combat this problem, New York’s state legislature enacted the PPA.
The law applies to any “written or oral agreement for the construction… of any building, structure or improvement…where the aggregate cost of the construction project including all labor, services, materials and equipment to be furnished, equals or exceeds one hundred fifty thousand dollars ($150,000).” The purpose of the PPA, as stated in Section 756-a of the Act, is to “expedite payment of all monies owed to those who perform contracting services pursuant to construction contracts.” Although the PPA helps ensure that professionals in the construction industry are promptly paid for their services, one of the more controversial parts of the PPA is that some of its provisions override basic freedom of contract rights.
What this means is that under the PPA, some of the provisions in your construction contracts may be void and unenforceable. In the event a payment dispute arises and you try to enforce a certain provision in your contract, the courts may look to the PPA and rule against your contract. Under Section 757 of the PPA, the law says the following provisions in construction contracts are deemed void and unenforceable:
- “A provision, covenant, clause or understanding in, collateral to or affecting a construction contract, with the exception of a contract with a material supplier, that makes the contract subject to the laws of another state or that requires any litigation, arbitration or other dispute resolution proceeding arising from the contract to be conducted in another state.
- A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that a party to the contract cannot suspend performance under the contract if another party to the contract fails to make prompt payments under the contract.
- A provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that expedited arbitration as expressly provided for and in the manner established by section seven hundred fifty-six-b of this article is unavailable to one or both parties.
- A provision, covenant, clause or understanding in collateral to or affecting a construction contract establishing payment provisions which differ from those established in subdivision three of section seven hundred fifty-six-a and section seven hundred fifty-six-b as applicable.”
This language can be confusing to even longtime employees in the construction industry, which is why the experienced construction law attorneys at Scaffidi & Associates are here to help. If you have questions about whether your contracts are at risk of being deemed void and unenforceable, contact us today.