New York Fair Subcontracting

The New York Prompt Payment Act (General Business Law §§ 756–758) applies to most private construction contracts over $150,000. It establishes mandatory payment timelines, requiring owners to approve or disapprove an invoice within 12 business days and make payment within 30 days of approval. This Act is a cornerstone of fair subcontracting, designed to prevent cash flow problems. Crucially, this payment obligation flows down: once a contractor is paid by the owner, they must pay their subcontractors within seven days. If payment is delayed, the law stipulates that interest must be paid on the unpaid balance, adding a strong financial incentive for timely payment.

Beyond payment timelines, a range of practices is addressed by other legal principles. General contract law prohibits actions that violate good faith and fair dealing, such as demanding uncompensated work or imposing unreasonable conditions. For instance, a "pay-if-paid" clause, which makes a subcontractor's payment contingent on the contractor first being paid by the owner, is often unenforceable in New York. The principle of good faith and fair dealing implies that neither party will unfairly destroy the other's right to receive the benefits of the contract, ensuring a more equitable partnership.

A mechanic’s lien is a statutory tool that allows a subcontractor to secure payment for their work by creating an encumbrance on the property’s title. It is one of the most effective collection tools available, giving the subcontractor a direct security interest in the property they helped improve and priority over many other creditors. The process of filing a mechanic's lien must strictly adhere to the requirements of the New York Lien Law to be valid.

• Filing Deadline: The lien must be filed within eight months of the completion of the contract or the last day labor or materials were furnished.
• Contents of the Lien: The lien must contain specific information, including the names of the parties involved, a description of the work, and the unpaid amount.
• Service of Notice: After filing, a copy of the lien must be served upon the property owner within a specified timeframe.
• Enforcement: The subcontractor must file a lawsuit to foreclose on the lien within one year of its filing to enforce it.

It's crucial to note that any error in this process, such as a missed deadline or incorrect information, can render the lien invalid, making legal counsel highly advisable.

A clear, written contract is the most critical tool for preventing disputes and ensuring a fair subcontracting relationship. While verbal agreements can be legally binding, their terms are often difficult to prove. A comprehensive written agreement provides undeniable clarity and acts as a preventative measure by clarifying all expectations. For maximum protection, a subcontract should always include:

• Scope of Work (SOW): A precise description of all labor, materials, and services to be provided to avoid ambiguity.
• Payment Terms: The total price, schedule of payments, and conditions for each payment (e.g., upon completion of a milestone).
• Change Order Process: A formal procedure for documenting and approving any changes to the original scope, including adjustments to cost and schedule.
• Dispute Resolution Clause: An agreed-upon method for resolving conflicts, such as mediation or arbitration, which can be faster and less expensive than litigation.

Proper documentation is essential for establishing and enforcing legal rights. Subcontractors should meticulously document all aspects of their work and communications, including invoices, change orders, daily work logs, and relevant email correspondence. Accurate documentation is not just for disputes; it is also a prerequisite for smooth payment processing, as clear records support every item on an invoice. This comprehensive paper trail becomes invaluable evidence if a dispute arises. Without it, proving a claim can become significantly more challenging and costly.