Between the pandemic and the Great Resignation, you may think staffing your construction project is the toughest part of the job. However, filing the proper paperwork can be just as daunting.
Each state has its own rules and regulations for the types of construction contracts that need to be completed between the property owner and the contractor and with any subcontractors, suppliers, engineers, or architects involved in the project.
This article focuses on the primary factors you need to consider when drafting a construction contract under the law in the state of New York. Making sure you dot every “i” and cross every “t” will go a long way to avoiding any legal disputes that could arise down the road.
Types of Construction Contracts
Each type of construction contract outlines the payment and funding for builders, subcontractors, suppliers, and other companies involved in the project. They also stipulate the steps that must be followed once construction begins and the time limits on the project.
The five types of construction contracts most often used are:
- Lump-Sum or Fixed-Price Contracts
- Time and Materials Contracts
- Unit Pricing Contracts
- Cost-Plus Contracts
- Guaranteed Maximum Price Contracts
10 Important Contract Factors to Consider
In addition to choosing the right type of contract for your project, there are other important factors to consider. Here are 10 things to consider when drafting a construction contract in New York.
- Governing Law. According to Section 757(1) of New York’s General Business Law, private construction contracts are subject to New York state law. The lone exception to this rule is if the dispute arises with a material supplier from another state.
- Forum Selection. Section 757(1) of the General Business Law states that any dispute arising from a private construction contract must take place in the state of New York. As with the Governing Law rule, the only exception is if the contract is with a material supplier.
- Suspension of Work. Section 757(2) of the General Business Law prohibits the suspension of work if the other party does not make prompt payments according to the terms of a private contract.
- Periodic Payments –Disputes. Under Section 756-b(3) of New York’s General Business Law, parties cannot avoid the expedited and binding arbitration of any disputes over non-payment or late payments.
- Periodic Payments – Time. Payments must be made promptly – typically within a period of 30 days after the completion of the project. Then, the contractor or subcontractor must remit payment to their subcontractor within seven days after receiving their payment from the property owner.
- Retainage. The parties named in a construction contract on a public project cannot agree to retain more than 5% when the contract is supported by a performance bond and a payment bond and not more than 10% when no bonds are required or when the subcontractor does not provide such bonds.
- Payment Remedies. Any provisions in a construction contract that put conditions on a supplier’s or subcontractor’s right to legally pursue a claim on a contract’s payment bond upon the exhaustion of any other legal remedies are void in New York.
- Indemnification. According to Section 5-322.1 of the General Obligations Law, Owners, contractors, subcontractors, engineers, architects, or suppliers are prohibited from passing along the risk of their own negligence to other parties.
- Mechanic’s Lien Rights. The New York Lien Law’s Section 34 states that any construction contract language that attempts to eliminate or limit the lien rights of a contractor is void in the state of New York.
- Pay-When-Paid. New York state law recognizes that making a contractor’s obligation to pay a subcontractor contingent on the contractor receiving payment from the owner (known as “pay-when-paid”) is contrary to public policy. The reason is that it interferes with the mechanic’s lien rights (see above).
Understanding these 10 factors is critical to delivering on your end of a construction project in the state of New York. Your reputation may depend on it. Hiring an attorney specializing in construction law will also give you valuable peace of mind.