Get Your Interest?
01/12/2002By Walter T. Wolf
A universal and continuous problem for construction subcontractors and sub-subcontractors (subcontractors in this article) is to get paid by general contractors “G.C.” or owners and, in the event of a delay, get paid interest for the delay in payment.
In New Jersey, the Legislature enacted a law years ago (N.J.S.A. 2A:30A-2) to achieve some benefit for a subcontractor who has not been paid on time for construction services performed.
This staute essentially provides that if a construction subcontractor has:
1. Performed in accordance with the provisions of his Contract with the G.C.;
2. The construction work performed by the subcontractor has been accepted by the owner or the G.C., as applicable; and
3. The parties have not otherwise agreed in writing;
the contractor shall pay to his subcontractor and the subcontractor shall pay to his sub-subcontractor, the full amount received for the construction work within 10 calendar days of its receipt of each periodic payment, final payment or recipt of retainage monies.
In a situation involving ongoing work on the same construction project, in which partial payments are made, the amount of money owed by the G.C. or sub for work already completed shall only be payable if the sub is performing to the satisfaction of the G.C. or sub, as applicable.
The penalty for failing to abide by the above is that the delinquent party is liable for the amount owed, plus interest at a rate equal to the prime rate plus 1%, which has to be paid for the period beginning on the day after the required payment date and ending on the day in which the check for payment has been drawn.
When the prime rate is low as it is currently, this remedy may not be entirely to the sub’s satisfaction because cash flow is a major consideration. Furthermore, the utilization of the “prime rate” does not reflect the reality that most subcontractors, and general contractors as well, cannot borrow at this favorable rate.
On the other hand, when it comes to litigation over a disputed amount, extending the period of time for months or even years, unless otherwise agreed to by the parties, this law provides some relief to construction entities.
This article was published in Construction Today, Winter, 2002.