—Background—
P.L. 2006, c. 96 requires owners and operators to pay prime contractors within 30 days of completion of certain construction work.
Please note that a separate statutory provision applies to subcontractors. Specifically, this provision requires prime contractors to pay their subcontractors within 10 days of completion of work, provided the work has been accepted by the owner. The statute also permits a prime contractor and a subcontractor to contractually agree to a different time frame pursuant to the contract.
How does the law define “construction?”
The law covers all improvements to structures and real property. The definition of improvement is very broad and covers most types of construction work to buildings and property. In addition, it also includes the engagement of certain professionals in connection with construction work (e.g. engineer, surveyors, etc.).
Specifically, the law covers contracts to build, alter, repair or demolish any structure; 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 state law Additionally, a structure includes all or any part of a building or other improvement to real property.
Who is considered an “owner” or “prime contractor” under the law?
An owner is defined as any person or any public or governmental agency that has an interest in the real property
When does the law require payment?
The law requires non-government owners to pay a prime contractor 30 calendar days following the billing date specified in the contract. The law deems that billing is approved and certified 20 days after receipt of the bill by the owner. However, the owner may withhold full or partial payment if the owner provides a written statement to the prime contractor specifying the amount withheld and the reason for withholding within the 20-day period.
When does the law require payment from private owners?
The law requires non-government owners to pay a prime contractor 30 calendar days following the billing date specified in the contract. The law deems that billing is approved and certified 20 days after receipt of the bill by the owner. However, the owner may withhold full or partial payment if the owner provides a written statement to the prime contractor of the amount withheld and the reason for withholding payment within the 20-day period.
Example A: Contract specifies a billing date of the first of every month. Construction work was performed by prime contractor pursuant to the contract. Payment is due on the 31st day, unless the owner sends a written statement to the prime contractor stating a reason for any full or partial withholding of payment. This notice must be provided to the prime contractor on or before the 21st day.
What about work for public entities?
Public contracts follow the same procedure, except when construction work is performed for a public entity that requires the entity’s governing body to formally vote to approve payments. For these entities, the billing may be approved and certified at the next meeting of the governing body and must be paid before the close of the subsequent payment cycle. In order to utilize this procedure, the public entity must include these specific provisions within the bid specifications.
Example B: Contract specifies a billing date of the first of every month. A public entity includes as a provision in the bid specifications and contract stating the governing body must approve all expenditures at regular monthly meetings. Construction work is performed by the prime contractor pursuant to the bid contract. Billing, provided on the first of the month, is deemed approved and certified at the regular monthly meeting of the governing body of the entity. The entity has 20 days from the date of this meeting to send a written statement to the prime contractor stating the reason for any full or partial withholding of payment. If the entity does not provide any notice to the prime contractor, payment must occur prior to next regular meeting of the governing body.
—Remedies and penalties—
Owners that violate the law are liable to the amount of money owed under the contract plus interest.
Any prime or subcontractor that does not receive payment in accordance with this law may suspend performance of construction work without penalty, provided the contractor provides the owner with written notice seven days prior to the work stoppage. This provision does not apply to certain transportation projects that utilize federal funding. This section of the law is in addition to any other rights or remedies available to the parties.
The law provides that all contracts for improvements to real property must include a provision allowing alternative dispute resolution. Additionally, the law provides that any civil action relating to the payment of construction contracts must be conducted in New Jersey and that a prevailing party will be awarded reasonable costs and attorney fees.
—Strategies for compliance—
Owners and operators should consider enacting procedures to screen billings within 20 days of receipt.
—For More Information—
Click the download here to view more information from the NJ Department of Community Affairs and to view the entire law:https://www.nj.gov/dca/divisions/dlgs/lfns/06/2006-21.doc
Updated: March 3, 2022
This information should not be construed as constituting specific legal advice. It is intended to provide general information about this subject and general compliance strategies. For specific legal advice, NJBIA strongly recommends members consult with their attorney.
