If your NY construction contract has a Pay-When-Paid stipulation, you might feel like your only option is to wait it out. That’s not a great feeling! However, it’s important that you understand exactly what Pay-When-Pay means in New York, and how it affects your construction business. The reality is that you have options regardless of what the contract says. There are ways that you can speed up the time frame it takes to get paid in New York.
It’s not always easy being the third or fourth car on the payment train. The New York construction industry, like most things New York, likes to do its construction projects big and over-the-top. There can be a long train of subcontractors waiting to get paid on a standard New York construction project. The extended payment chains can leave the “little guy” waiting a long time to get paid.
Cash flow is a key to success in the construction business. Waiting for situations like “Pay-When-Paid” to flesh themselves out can really handcuff a subcontractor’s growth.
What New York says about Pay-When-Paid clauses
If you’re waiting to get paid for work you’ve completed or materials you’ve supplied to a job, you’ve probably had an extra look at your construction contract. You may or may not have realized that a Pay-When-Paid clause was even in there. Let’s take a look at what Pay-When-Paid (PWP) actually means.
New York General Contractors might include a PWP stipulation in their contracts, but that doesn’t absolve them of payment. A Pay-When-Paid clause basically says that a contractor doesn’t have to pay their subcontractors until they’re paid by the owner or managing party. This is a method prime contractors can use to minimize their risk and protect their cashflow.
A New York Pay-When-Paid clause is only enforceable within a “reasonable timeframe.” If the Pay-When-Paid stipulation states that a contractor will pay subcontractors within 7 days of receiving payment, it’s enforceable. If the clause is used to put the risk on the subcontractor in the event of non-payment, New York courts will not enforce it.
PWP is one thing: Pay-If-Paid is a different story altogether. Pay-If-Paid clauses state that a GC will only pay IF they get paid by the owner. If the owner doesn’t pay, the subs don’t get paid. These clauses are illegal in New York and will not be honored in court.
What subcontractors can do to get paid faster in NY
There are a few tactics that you can employ to shorten the payment timeframe. You have options to get the ball rolling towards faster payment. These methods will help even if your contract states you’ll get paid only after the GC gets paid.
If you haven’t already, begin sending preliminary notices on all of your jobs. They call attention to your company’s presence on the job and the work you’re doing there. Preliminary notices provide a savvy and professional first impression. That means you’ll be far less likely to be forgotten when it comes to paying the subs. No one wants to mess with an outfit like that.
Submit complete pay applications
Putting some extra effort into your payment applications could also speed up the process. It might take more time, but you should start to include itemized lists of hours and materials used with your payment applications.
In one New York court case, the subcontractor lost out on over $1 million owed to them in a lien case over insufficient labor and materials data. Providing detailed documents with your pay application shows that you’re prepared to defend your lien claim.
NY Prompt Payment vs. Pay-When-Paid
New York’s Prompt Payment Act can be helpful as well. NY General Business Statute Section 756 gives property owners 12 days to approve or deny a GC’s payment application.
If the payment is approved, the owner has 30 days to pay the GC. Once the GC gets paid, they have 7 days to pay the subs.
What this means is that, unless the owner disputes something in the GC’s application, the longest a NY subcontractor should expect to wait for payment is 49 days from the date the pay app was submitted.
The first step to protecting yourself under New York’s Prompt Payment laws is to send a well-written prompt payment demand letter to the parties involved. These demand letters inform the owner that you know that they’re in violation of the law – and lets them know the penalties and consequences for failing to pay quickly.
File a NY mechanics lien
Even if you’ve signed a Pay-When-Paid contract, you have the right to file a mechanics lien in New York to get paid faster. A mechanics lien attaches to the owner’s property and can really hinder progress on the job or development. Financing will be harder to secure and when the property sells, the new owner has to square the mechanics liens away before they can take full ownership of the property.
The deadline to file a New York mechanics lien is 8 months from the time that you’ve finished the contract or last worked on the job. (If you’re working on a single-family home, the deadline drops to 4 months.)
If you are being strung along, or banking on the Pay-When-Paid stipulation, you need to be careful you don’t run this statute out without filing. In New York, mechanics liens have to be addressed within one year of filing, which at least provides a light at the end of the tunnel.
When is it time for a NY subcontractor to demand payment?
When you work on a New York construction contract with a Pay-When-Paid cause, you’re not expecting to get paid as soon as you turn in your pay app.
But every contractor or sub has their own threshold for how long they’re willing to wait for payment. Some only look at their cash flow, and see how long they can pay their employees and suppliers before cash reserves run dry.
No matter how much cash you have in the bank, there’s one threshold that NY subcontractors should follow closely: The deadline to file a mechanics lien. If you miss the lien filing deadline, your negotiating power is dramatically reduced.
But that doesn’t mean you should wait until the day before the deadline to see if you get paid. The actions you take between doing the work and filing a mechanics lien will determine how quickly you’re able to collect on that payment. Be detailed on your payment applications, use New York’s Prompt Payment laws to your advantage, and always protect your right to file a mechanics lien.