Pay-if-Paid Clauses and Shortened Claim Deadlines: Polar Bear Mechanical

Reviewed September 7, 2026.

In Polar Bear Mechanical, Inc. v. Walison Corp., 2017 NY Slip Op 50848(U), the Appellate Term rejected a payment condition that shifted the owner's nonpayment risk to the subcontractor. That ruling did not save the subcontractor's late lawsuit.

The separate deadline still mattered

The agreement expressly severed unenforceable provisions and required suit within six months after an early termination. The court enforced that deadline on the record presented and affirmed dismissal of the claim against the contractor and surety. It also corrected the lower court's jurisdiction analysis: the pleaded claim could be read as one to establish a lien and recover a personal judgment.

Read payment and enforcement terms together

A clause's effect matters more than its label. A condition making payment depend entirely on the owner's payment presents a different issue from a reasonable payment-timing term. Likewise, an invalid payment condition does not automatically invalidate every contractual deadline. Record termination dates, final-application dates, notice requirements and the separate deadlines for liens and bonds in a deadline calendar before waiting for upstream payment.

Kushnick Pallaci PLLC assists clients throughout New York with construction contract drafting and review. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Limits on Retainage in New York Construction Contracts

Updated September 7, 2026. Before negotiating retainage, check the project's statutory coverage, the contract date and the percentage actually being withheld by the owner.

Can the contractor retain more than the owner?

For covered contracts governed by the current General Business Law § 756-c, retainage may not exceed 5%, and downstream retainage may not exceed the owner's actual percentage. For example, if the owner retains 3%, the contractor cannot use a 5% subcontract clause to retain more under that provision.

The five-percent amendment applies to covered contracts entered into on or after November 17, 2023. See the enacted 2023 legislation. § 756 contains the project's cost threshold and exclusions; the rule should not be applied indiscriminately to every residential or public job.

What should a payment review include?

• The agreed retainage percentage and its statutory limit.
• The amount retained upstream and the corresponding downstream calculation.
• The date of final approval and when retainage was received.
• Any separate, documented basis for withholding a disputed amount.

Section 756-c sets the owner's release deadline at no later than 30 days after final approval of the work and provides interest for a failure to release retainage as required. A final invoice at substantial completion and final approval for retainage release are distinct issues.

Kushnick Pallaci PLLC reviews retainage and payment terms in construction contracts. For the broader statutory framework, read our updated Prompt Payment Act guide.

General information only. Review the contract and applicable statutory version for a particular project.

Incorporated Prime-Contract Terms and Change Work: CNP Mechanical

Reviewed September 7, 2026.

CNP Mechanical, Inc. v. Allied Builders, Inc., 84 AD3d 1748 (2011), illustrates why a subcontractor should obtain the prime contract incorporated into its agreement.

The Fourth Department reduced awards for four owner-issued construction change directives to the amounts the owner approved under the incorporated terms. It also adjusted interest to the dates payment became due under the valid timing clause. For other extra work, the court upheld recovery because the contractor had waived written-change-order compliance and the proof supported the work's value. The contractor's back-charge and willful-exaggeration counterclaims failed for insufficient proof.

Manage each category of changed work separately

Identify who directed the work, who may approve its price, the required notice and the evidence of authorization. Obtain written confirmation before relying on a departure from the contract. Proof of a waiver in one case does not guarantee recovery on another project.

Review payment conditions under current law rather than treating this historical timing ruling as permission to transfer the owner's nonpayment risk. Keep the prime contract, amendments, directives, pricing submissions and approval records together.

Kushnick Pallaci PLLC assists clients throughout New York with construction change-order disputes. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Failure to Pay a Lower-Tier Subcontractor Can Support Termination

Reviewed September 7, 2026.

In American Curtainwall, Inc. v. NTD Construction Corp., 83 AD3d 597 (2011), the First Department affirmed dismissal of breach-of-contract and quantum-meruit claims.

Documents attached to the complaint contradicted the claimed wrongful termination. Nonpayment of the lower-tier subcontractor justified termination under the agreements. The plaintiff's refusal to pay even after an offer to reverse termination also supported the finding that it had waived the contractual cure period. The written contracts barred quasi-contract recovery for the same subject matter.

Respond to a payment default with the contract in hand

Review the lower-tier payment obligation, amounts actually due, disputed performance, cure notices and the evidence supporting any deduction. Upstream nonpayment is not automatically a defense to an independent payment duty.

The case does not establish that every invoice must be paid despite a valid dispute or that cure notices can routinely be skipped. Termination and waiver are fact-sensitive. Document payment decisions and evaluate contract, trust-fund and statutory duties before withholding money or ending a subcontract.

Kushnick Pallaci PLLC assists clients throughout New York with construction contract litigation. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Payment Conditions and Conflicting Suit Deadlines: JC Ryan v. Lipsky

Reviewed September 7, 2026.

In JC Ryan EBCO/H&G, LLC v. Lipsky Enterprises, Inc., 78 AD3d 788 (2010), a subcontract made owner payment a condition of payment and required the subcontractor to pursue lien foreclosure to judgment before suing the contractor. It also imposed a six-month suit deadline.

The Second Department affirmed denial of the motion to dismiss. The payment condition improperly transferred the owner's nonpayment risk. The claim might not become enforceable under that condition before the six-month deadline expired, and the court found the conflicting provisions inseverable.

The practical lesson

This decision addresses the actual risk-shifting language and conflicting deadlines, even though the opinion uses the phrase “pay-when-paid.” It does not invalidate every payment-timing clause or every shortened limitations period. Review severability language and the precise trigger for each deadline. Keep separate calendars for contractual notices, payment-bond claims and lien preservation; a favorable argument about one clause does not excuse missing an independent requirement.

Kushnick Pallaci PLLC assists clients throughout New York with construction contract litigation. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Pay-if-Paid Versus Pay-When-Paid: Reading a New York Subcontract

Reviewed September 7, 2026.

The phrases “pay-if-paid” and “pay-when-paid” are often used loosely. Read the operative language: does it merely set a payment schedule, or does it make the subcontractor absorb the owner's failure to pay?

New York courts reject payment conditions that improperly shift that risk and defeat lien rights. A valid timing provision presents a different question. In CNP Mechanical, Inc. v. Allied Builders, Inc., 84 AD3d 1748 (2011), the court used the agreement's valid timing clause to determine when interest on specified change work began. That decision does not authorize indefinite nonpayment.

Review the whole payment process

Compare the subcontract with incorporated documents, approved change orders, invoice certifications and payment records. Establish whether payment has become due, which amounts are disputed and what supporting information is missing. A clause that looks like a timing term can still function as an impermissible transfer of risk.

For covered private projects, also check the Prompt Payment Act's project definition and exclusions and its nonwaivable protections. Do not rely on an old contract date or a foreign-law clause as a general escape from New York law. Seek review of the particular agreement and preserve all claim deadlines while payment discussions continue.

Kushnick Pallaci PLLC assists clients throughout New York with subcontract drafting and review. Contact 631-752-7100 or vtp@kushnicklaw.com.

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