Category Firm News, Regulatory Compliance

NJ Prompt Payment Act Compels Payment on Construction Projects

After completing a construction project, contractors are often faced with the problem of collecting timely payment for approved work. In response to this problem, the New Jersey Legislature enacted the New Jersey Prompt Payment Act N.J.S.A. 2A:30A-2.

Federal Prompt Payment Act

This created a remedy to both general contractors and subcontractors when payment has been wrongfully withheld by an owner or upper-tier contractor, even after the work has been approved and certified for payment. 

In order to induce timely payment, the Prompt Payment Act provides the contractor seeking payment with a valuable new tool in the form of a civil cause of action that, if successful, creates liability against the delinquent party for: 

(a) the amount of money owed under the contract 

(b) interest at a rate equal to the prime rate plus 1%

(c) attorneys’ fees to the prevailing party.  

These additional remedies provide leverage to the contractor’s collection efforts by placing the delinquent party on notice that there could be significant penalties for delaying payment that is otherwise due.     

In order to receive the benefits of the Prompt Payment Act, a prime contractor’s invoice must be paid within 30 days of receipt of an invoice that was “approved and certified by the owner”. In most cases, an invoice is deemed “approved and certified” if the owner does not object in writing within 20 days after receipt of the invoice. 

If the owner does object, the owner must provide the reasons for the objection and specify the objected amount. Any portion of the work that was not objected to, must be promptly paid. 

With respect to subcontractors, once the work has been accepted by the owner or prime contractor, as applicable, and the parties have not otherwise agreed in writing, the prime contractor must pay the subcontractor within 10 days of receipt of the periodic payment from the owner.  

As set forth above, the Prompt Payment Act creates a strict time schedule pursuant to which payments are due from an owner, prime contractor or subcontractor to contractors attempting to collect. A delinquent party’s failure to comply with the Prompt Payment Act gives additional leverage to the contractor seeking to collect and can possibly use this leverage to receive payment before litigation becomes necessary. 

If you would like more information on this issue or if you are a small business owner in need of guidance, please contact us today. At Santomassimo Davis LLP, our team of lawyers, experienced in compliance, can help effectively minimize your company’s risk and avoid the unnecessary liabilities many businesses unknowingly face. 

Understanding how this affects the small business economy is part of our job here at Santomassimo Davis LLP, as we primarily focus in providing expert Outside General Counsel for a variety of law firms and legal issues related to Corporate and Business Law in New Jersey, New York and Pennsylvania.

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