If you are a construction contractor, you probably worry about getting paid on time. After all, you need cash-flow to cover ongoing labor and material costs.
Under New Jersey’s Prompt Payment Act (N.J.S.A. 2A:30A-1 & -2) (the “Act”), in addition to the amount owed under the contract, a prime contractor may be entitled to interest at a rate of prime plus 1%, and reasonable attorneys’ fees and costs, if:
• the contractor performs (in New Jersey) according to its contract with the owner (such as a landlord, developer, or homeowner);
• the contractor provides written notice to the owner of the work performed and requests payment pursuant to what the contract entitles the contractor;
• within 30 days after the agreed upon billing date, and if the owner has “approved and certified” the billing for the work, the owner does not pay the amount due under the contract
(with the exception of certain public entities, the owner is deemed to have “approved and certified” the billing for the work if, after 20 days after the owner receives the contractor’s written notice, the owner does not respond with a written statement of the amount withheld from payment and why);
• the contract permits a party to resort to alternative dispute resolution (such as arbitration) to resolve a payment dispute; and
• the contractor successfully prosecutes a lawsuit in New Jersey to collect the amount owed under the Act.
The Act also may permit the contractor, after giving 7 days’ written notice, to suspend performance under the contract if the owner (1) has not made the payment required by the Act, (2) has not provided the required written response, and (3) is not engaged in a good faith effort to resolve the reason for the withholding.
But beware: the Act will not restrict the rights and remedies of a residential homeowner or purchaser with respect to the property being improved. A homeowner facing a lawsuit under the Act might try to assert a counterclaim under the many consumer protection laws, including the Consumer Fraud Act (a topic I will cover in a future article).
Doug Goldstein, Attorney at Law 