There is probably not a day that goes by that I don’t hear someone tell me that something that [insert name of person that owes them money] did that is a violation of the Prompt Payment Act. It’s really quite amazing how all-encompassing the Prompt Payment Act (“PPA”) has become over the years…at least in the minds of those in the NY construction industry. The truth is that the PPA is an effective (and under-utilized) tool, but it’s not always applicable and it doesn’t, despite what your buddy told you, cover everything and require you to be paid within ten days no matter what. Here’s what the PPA does do:
When does it apply?
It applies to “construction contracts.” Before you jump up and down, read the definition in the PPA. A construction contract may not be what you think it is. Better yet, see what it is not: a construction contract is not a contract for public works nor is it a contract for the construction of a one, two or three family home. You can almost hear the collective gasps. I’ll bet more than half of the people that talk about what their customer must do under the PPA don’t realize that it doesn’t even apply to them.
If it does apply…
You can still bargain for whatever you want in your contract and your contract will control over the PPA terms with limited exceptions. If your contract does not cover a particular issue, then the PPA will control if you are, in fact, operating under a “construction contract.” The PPA requires approval or disapproval of invoices within twelve (12) days of the time that all necessary documentation has been submitted. Disapproved invoices must be explained in writing. If payments aren’t made as required under the PPA then it provides for interest at the rate of 1% per month and expedited arbitration. There are detailed procedures for invoicing and processing invoices. Everyone that is in accounts receivable or accounts payable should read the PPA and know what they are required to do.
The PPA makes the following provisions void so, even if they are in the contract, they cannot be enforced: 1) any provision that requires you to apply the laws of a state other than NY or to litigate or arbitrate any dispute arising out of the contract outside of NY (unless it’s a contract with a material supplier); 2) any provision that prohibits suspending work for non-payment; 3) any provision that says expedited arbitration, as provided in the PPA, is unavailable; 4) any provision that establishes payment provisions that differ from those in the PPA.