When negotiating construction contracts for New York projects it’s important to understand the effect of unique New York statutes and caselaw on the parties’ ability to negotiate terms. 

For example, a “pay when paid” provision appearing in a construction contract is almost always unenforceable regardless of whether the parties agree to its inclusion in the contract. West-Fair Elec. Contrs. v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148 (1995). Likewise, New York courts uniformly interpret a general flow down provision in a subcontract as binding a subcontractor “only as to prime contract provisions relating to the scope, quality, character and manner of the work to be performed by the subcontractor”, and not administrative provisions like insurance, indemnity, or claim resolution requirements.  New York City Hous. Auth. v. Harleysville Worcester Ins. Co., 226 A.D.3d 804, 807-808 (2nd Dept. 2025).  

Statutory limitations include General Obligations Law § 5-322.1 which prohibits enforcement of a provision in a construction contract “purporting to indemnify or hold harmless the promisee against liability for damage arising out of bodily injury to persons or damage to property contributed to, caused by or resulting from the [promisee’s own negligence] whether such negligence be in whole or in part, is against public policy and is void and unenforceable.”  (Note, the law specifically excludes an insurance contract, workers’ compensation agreement or other agreement issued by an authorized insurer from the stated prohibition). 

Lien Law § 34 forbids the enforcement of  “any contract, agreement or understanding whereby the right to file or enforce any [mechanic’s] lien created under article two is waived, as against public policy and wholly unenforceable.” Notably the law carves out a specific exception for “the simultaneous exchange of a lien waivers for payment received for work performed”, or subsequent filing of a satisfaction of a notice of mechanic’s lien.

New York’s Prompt Pay Act at General Business Law Art. 36E (the “Act”) provides several statutory restrictions to the enforceability of terms in a construction contract. The Act applies to private construction contracts where the aggregate value of the project exceeds $150,000. GBL § 756-A begins with the following: 

It is the policy and purpose of this article to expedite payment of all monies owed to those who perform contracting services pursuant to construction contracts. Except as otherwise provided in this article, the terms and conditions of a construction contract shall supersede the provisions of this article and govern the conduct of the parties thereto. (emphasis added).

While at first glance the Act would appear to provide strong support for the agreed terms in a contract, a closer examination reveals significant issues that are “otherwise provided in the article”.

757 of the Act expressly voids any provision, covenant, clause or understanding in a construction contract:

• that makes the contract subject to the laws of another state or that requires any litigation, arbitration or other dispute resolution proceeding arising from the contract to be conducted in another state (with the exception of a contract with a material supplier).
• stating that a party to the contract cannot suspend performance under the contract if another party to the contract fails to make prompt payments under the contract.
• stating that expedited arbitration as expressly provided for and in the manner established by § 756-B of the Actis unavailable to one or both parties.
• establishing payment provisions which differ from those established in subdivision three of section seven hundred fifty-six-a and section seven hundred fifty-six-b of the Act.
• requiring retainage in an amount exceeding five percent of the contract sum.

The provisions referenced at GBL §757 are likely not intended to be an exhaustive list. The scope of the Act’s effect on payment terms in private construction contracts is still being determined by the courts.  Likewise, identifying all of the statutory and caselaw restrictions to the enforceability of contract terms is well beyond the intended scope of this blog. Clearly, the more knowledgeable party will have the upper hand in the construction contract negotiation. 

Attorney Dan Adams

Daniel P. Adams is a partner with Adams Leclair LLP.  He focuses his practice on construction law and litigation.  He can be reached at dadams@adamsleclair.law