The federal government is allocating over a trillion dollars in funding for public infrastructure construction projects over the course of the next decade. A large amount of that funding is going to go directly to individual states, and with the state adopting new laws in 2021 that reconfigure the bidding process — along with adding the “design-build” option to the public construction process — there are plenty of opportunities for contractors across New Jersey.
With this much work available, contractors in New Jersey should be ready to take advantage of these new opportunities — and completely prepared to protect their payment rights while doing so.
Though popular thinking is often that public projects run into fewer payment problems than private ones do, but they often run into just as many — or more — payment obstacles, even though public works projects are a major source of benefit for contractors. Protecting your payment rights on public works projects is crucial — contractors deal with payment issues on these projects just as much as on private ones.
Payment protection on New Jersey public projects
Even though payment challenges can be similar — slow payment is a plague across the whole construction world — payment protection is very different between private and public work.
When payment problems come up, contractors on public projects can’t turn to the mechanics lien for the solution — both the federal and state governments prohibit private companies from gaining interest in public property. Instead, general contractors on public construction projects have to secure a payment bond prior to the start of work. In the event of a payment dispute, contractors file claims against the payment bond instead of against the property itself.
The Miller Act provides directly for this payment protection at the federal level, and most states have their own version of it with laws usually called “Little Miller Acts.” New Jersey similarly has its own Little Miller Act which protects contractors on public works projects — as long as they stay on top of their payment rights in the process.
Learn more – Little Miller Acts: Bond Requirements on State Construction Projects
New Jersey bond claim laws & liens on contract funds
Public projects in New Jersey have two types of payment protection: A claim against a payment bond, or, for municipal projects, a lien claim against contract funds.
Bond claim rights are available on all state and municipal projects in New Jersey, with first and second-tier subcontractors and suppliers having protection rights. Liens on contract funds are only available on public works projects that haven’t been commissioned by the state or state agency. Instead, these liens only apply to counties, cities, towns, townships, or other municipal commissions, boards, or entities. Any party who contracted directly with the prime contractor, first-tier sub, or second-tier subcontractor can file a lien on funds.
Ensuring rights on these claims requires preliminary notice to be sent. All claimants who didn’t contract directly with a project’s prime contractor must send a preliminary notice to have the right to make a claim against a project’s payment bond in New Jersey. Similarly, every claimant must send a preliminary notice to file a lien on contract funds.
For bond claims, preliminary notice must be given prior to the commencement of work, whereas for a lien on contract funds notice must be served no later than 20 days after the date of first furnishing labor and/or materials to the project.
Preliminary notice requirements
On bond claims, notice must be provided to the general contractor who posted the payment bond on the project, while the notice for liens on contract funds needs to instead be filed with either the municipal clerk, the chief financial officer of the county, or the chairman of the commission, board or authority who commissioned the work.
The best practice for sending preliminary notices on bond claims is to include the following information, and include a statement that the claimant is a beneficiary of the bond:
- Claimant’s name, address, & phone number
- Hiring party’s name
- Date of first furnishing or anticipated date of commencement
- Description of labor and/or materials to be furnished
- Project name & county
The same information applies to lien on contract funds claims.
In the case of bond claims, preliminary notice has to be sent by certified mail — or at least via a method that shows proof that the notice has been received. The preliminary notice of a claimant making a claim on the contract funds must be filed with either the municipal clerk, the chief financial officer of the county, or the chairman of the commission, board or authority who commissioned the work. Receipt is pivotal: Both notices are considered served when actually received or filed with the public entity.
If either notice is served late, it isn’t fatal to the claimant’s payment rights. However, the amount of protection will be limited to the value of labor and/or materials provided from the date the notice was served, and everything thereafter. If the lien on funds notice is served late, it covers all labor and materials 20 days prior to receipt in addition to everything afterwards.
Learn more and download forms with the New Jersey Preliminary Notice: Guide + Free Forms.
Making a claim
For bond claims, claims against the bond have to be made no later than one year from the date of last furnishing labor and/or materials to the project. If it comes to it, the lawsuit to enforce the claim has to be initiated at least 90 days after filing the claim, but no later than 1 year after the date of last furnishing.
Oftentimes, best practice is to send the claim no later than 90 days prior to the one-year anniversary of the date of last furnishing — 275 days after the date of last furnishing at the very latest.
A claim of lien on funds can be filed at any time during the course of the project, but has to be filed no later than 60 days after the completion or acceptance by the public entity. A lawsuit to enforce a municipal lien on contract funds needs to be initiated within 60 days after the completion or acceptance of the overall project. Additionally, if an action has already been initiated by a different claimant, you can preserve your claim by filing an answer in that action.
Generally, filing these claims is simple. There isn’t a specific method for sending a public payment bond claim in New Jersey, with registered or certified mail usually being the best option to ensure the claim is received — and that you have proof of it being received. Similarly, filing a lien on contract funds is simple, as it only needs to be filed with the appropriate party of the public entity.
New Jersey retainage laws
Retainage — or retention — is an amount of a contract that is held back from a contractor or subcontractor during the course of the project. Retainage often serves the purpose of providing incentive to a project’s contractor or subcontractor to complete the project, as well as to give the entity or owner some protection against liens, defaults, and delays.
New Jersey’s retainage statutes only apply to certain public works projects. Generally, the amount of retainage that can be withheld on public projects is capped at 2% of each progress payment.
The amount of retainage — and when it gets released to contractors — is different depending on the type of public project, though. On county and municipal projects, retained is reduced to 1% after substantial completion. On state highway projects, the rate can range from 2-5%. The release of retainage by the public entity can also range from 30-45 days depending on the project. After retainage is received by a project’s prime contractor, it should be released to subs and suppliers within 10 days.
Deep dive: The Ultimate Guide to Retainage in the Construction Industry
New Jersey prompt payment laws
Prompt payment laws regulate the amount of time in which payments must be made to contractors and subcontractors, and are meant to ensure that everyone on a construction project is paid in a timely fashion, keeping cash flow moving smoothly for everyone involved in a public works project.
New Jersey’s prompt payment provisions cover both private and public projects. Generally, the due date for all payments from the public entity to the prime contractor is determined by the terms of the contract, and after this, the entity must release payment within 30 days of the specified due date. Once the contractor receives payment from the entity, they then have to pay their subcontractors and suppliers within 10 days. That said, this deadline can be modified by the contract terms, and the same rules apply to all other payments, down the payment chain — which means having a close understanding of the contract’s provisions a must.
Payment requests are considered to be approved and certified by the public entity within 20 days, unless a written statement is issued to the contractor stating the amount to be withheld and the reasons for the withholding. New Jersey’s prompt payment statutes don’t provide any specific reasons to withhold payment other than performance that isn’t in accordance with the terms of the contract.
In the event of nonpayment, prime contractors, subcontractors, and sub-subcontractors have the right to suspend performance if written notice is provided at least seven days prior to suspending work without liability for breach of contract (though, this doesn’t apply if the project is for the Department of Transportation — receiving federal funding and stopping work would affect federal funding).
If any payments are late or otherwise wrongfully withheld, the unpaid balance is then held subject to interest penalties. Interest will begin to accrue the day the payment is past due at the prime rate plus 1%. In addition to this amount, in the event of a dispute going to court, the prevailing party will be awarded reasonable costs and attorney fees.
New Jersey prevailing wage laws
New Jersey requires contractors to pay prevailing wage rates for most municipal and state-financed construction projects. These laws are in place “to protect [construction laborers] as well as their employers from the effects of serious and unfair competition resulting from wage levels detrimental to efficiency and well-being.”
The state’s prevailing wage laws apply to municipal government projects costing over $16,263, projects for all other public entities over $2,000, and they apply for all projects in buildings owned or leased by state or local governments. These laws require that for every public construction project that’s required to pay a prevailing wage, the prevailing amount has to be included in the project contract — and the contract is required to include a provision establishing that workers on a given job will not be paid less than the prevailing wage rate.
New Jersey also has a separate set of prevailing wage laws for contractors providing “building services” to state-owned or leased buildings, which serve separate purposes than for standard construction labor. “Building services” are defined as regular building maintenance and cleaning services.
Learn more – Prevailing Wages in New Jersey: What Contractors Should Know
Protect your payment rights on every public project
Though there are a number of guidelines that need to be followed in order to secure payment rights on public projects in New Jersey, going the extra mile to protect your payment rights can help to ensure that you’ll receive the right payment for your work in any situation.
Even though preliminary notices are required on public projects in New Jersey, it’s important to file them as early as possible in order to ensure that bond rights are maintained. Even beyond maintaining these rights, sending a preliminary notice maintains a line of communication throughout the chain on a construction project, giving all contractors involved the opportunity to make sure that payment disputes are taken care of earlier on in the process rather than later.
When a company is dealing with documentation like what is needed for preliminary notices and bond claims, proper document retention and management is an absolute necessity when it comes to protecting your payment rights. Especially when sending notices and maintaining the proper documents needed for claims, it can be enormously beneficial for you to have an organized policy for document retention.