Substantial Completion Bill Signed Into Law
New York continues to provide legislation designed to speed up payment to contractors. Following on the heels of Prompt Pay Act, (albeit eleven years later) Governor Cuomo signed into law the “Substantial Completion” act on December 19, 2020.
Law clarifies “substantial completion” for the purposes of requisition payments to contractors, subcontractors and materials suppliers in construction contracts.
Substantial completion triggers:
- release of retainage
- commencement of warranties
- punchlist completion
- claims resolution
Law clears up ambiguities on when a contractor’s right to file a mechanic’s lien for retainage accrues.
The new legislation applies to public contracts only. The law’s critical new language is in bold below:
When the work or major portions thereof as contemplated by the terms of the contract has reached substantial completion which, for the purposes of this section, shall mean the state in the progress of the project when the work required by the contract with the public owner is sufficiently complete in accordance with the contract so that the public owner may occupy or utilize the work for its intended use; provided further, that “substantial completion” shall apply to the entire project or a portion of the entire project if the contract with the public owner provides for occupancy or use of a portion of the project, the contractor shall submit to the public owner and/or his agent a requisition for payment of the remaining amount of the contract balance.
Essentially codifies substantial definition from AIA construction documents.
The new legislation also starts the clock on the owner’s obligation to provide the contractor with a single defined “punchlist” of remaining open items of work:
Not later than forty-five business days after the date when the project has reached substantial completion, the public owner shall submit to the contractor a written list describing all remaining items to be completed by the contractor. Not later than seven calendar days after receiving a written list describing all remaining items to be completed by the contractor, the contractor shall submit to each subcontractor from whom the contractor is withholding retainage a written list of all remaining items required to be completed by the subcontractor. Such list may include items in addition to those items on the public owner’s list.
The inclusion of the punchlist requirement will be welcomed by contractors throughout the state. Too often public projects linger for excessive amounts of time due to the owner generating successive generations of punchlists; each of which must be completed by the contractor before the project can be closed out, and final payment received. The courts’ strict interpretation of this new provision should be an immense improvement in closing out public construction projects.
The new law enjoys broad support among construction trade groups.
Two significant caveats to consider. First, the law provides a different definition for school projects, and second, the law leaves in place the phrase “…as contemplated by the terms of the contract.” It remains to be seen how the courts will interpret the legislature’s intent in leaving in place the “as contemplated” language.
The law provides support to contractors who find themselves at the mercy of public owners who unreasonably delay issuing a certificate of substantial completion. Taking the determination of when a project is substantially complete out of the control of a public entity whose interests may be at odds with a contractor or subcontractor, will presumably result in a quicker release of retainage on public works contracts. Hopefully, the players in the construction industry and the courts when necessary, will remember the stated purpose of the legislation, which is to streamline completion and final payment on public projects.
Daniel Adams is a founding partner of Adams Leclair LLC.