• New Jersey Amends Prompt Payment Law to Provide Standardized Process for Payment to Contractors
  • September 21, 2006 | Authors: Angelo A. Stio; Jonathan M. Preziosi
  • Law Firm: Pepper Hamilton LLP - Princeton Office
  • On September 1, 2006, New Jersey Governor Jon Corzine signed a bill that amended New Jersey’s prompt payment law and created a more standardized process for prompt payment of construction contracts to contractors. The new law applies to all contractors and virtually all public and private construction projects in New Jersey. Previously, the prompt payment law only provided protection to subcontractors and sub-subcontractors, not a project’s prime contractors. The new law now requires project owners to make prompt payments to prime contractors as well.

    Under the new law, 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 owner must pay the amount due to the prime contractor within 30 days of the billing date. A bill is deemed certified under the new law 20 days after the owner receives it, unless the owner provides a written statement of the amount withheld and the reason for the withholding of payment within the 20-day period. This amends the current law that allows government payments to occur within 60 days of the billing date.

    If payment is not made within the statutory 30-day period, contractors (including prime, sub and sub-sub) are entitled to recover the amount owed under the bill plus interest at a rate equal to the prime rate of interest plus 1 percent. Under the old prompt payment law, liability for non-payment only applied to contractors and subcontractors; non-payment liability now applies to construction project owners in the government and private sector as well.

    Finally, the new law permits any prime contractor, subcontractor or sub-subcontractor who is not paid timely to suspend performance under the construction contract until payment is made. Before work suspension can occur, however, the party failing to make payment must be provided with seven days’ written notice of the work stoppage. The new law further recognizes that to the extent a party exercises its right to suspend performance for non-payment, it will not be held liable for breach of contract.

    In recent years, many states have enacted similar prompt payment acts designed to prevent wrongful withholding of payments to contractors (and subcontractors). However, unlike many other states, New Jersey’s law does not provide for the recovery of attorneys’ fees in the event that litigation is necessary to collect the wrongfully withheld monies. Time will tell whether the New Jersey law successfully chills attempts by owners and contractors to withhold wrongfully payments owed to others.