New Jersey-2010-S3145-Introduced

An Act concerning the prompt payment of construction contracts and amending P.L.1991, c.133.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 2 of P.L.1991, c.133 (C.2A:30A-2) is amended to read as follows:

2. a. If a prime contractor has performed in accordance with the provisions of a contract with the owner and the billing for the work has been approved and certified by the owner or the owner's authorized approving agent, the owner shall pay the amount due to the prime contractor for each periodic payment, final payment or retainage monies not more than 30 calendar days after the billing date, which for a periodic billing, shall be the periodic billing date specified in the contract. The billing shall be deemed approved and certified 20 days after the owner receives it unless the owner provides, before the end of the 20-day period, a written statement of the amount withheld and the reason for withholding payment, except that in the case of a public or governmental entity that requires the entity's governing body to vote on authorizations for each periodic payment, final payment or retainage monies, the amount due may be approved and certified at the next scheduled public meeting of the entity's governing body, and paid during the entity's subsequent payment cycle, provided this exception has been defined in the bid specifications and contract documents.

b. If a subcontractor or subsubcontractor has performed in accordance with the provisions of its contract with the prime contractor or subcontractor and the work has been accepted by the owner, the owner's authorized approving agent, or the prime contractor, as applicable, and the parties have not otherwise agreed in writing, the prime contractor shall pay to its subcontractor and the subcontractor shall pay to its subsubcontractor within 10 calendar days of the receipt of each periodic payment, final payment or receipt of retainage monies, the full amount received for the work of the subcontractor or subsubcontractor based on the work completed or the services rendered under the applicable contract. In the case of ongoing work on the same project for which partial payments are made, the amount of money owed for work already completed shall only be payable if the subcontractor or subsubcontractor is performing to the satisfaction of the prime contractor or subcontractor, as applicable.

c. If a payment due pursuant to the provisions of this section is not made in a timely manner, the delinquent party shall be liable for the amount of money owed under the contract, plus interest at a rate equal to the prime rate plus 1%. Interest on amounts due pursuant to this section shall be paid to the prime contractor, subcontractor or subsubcontractor for the period beginning on the day after the required payment date and ending on the day on which the check for payment has been drawn. The provisions of this subsection c. shall not apply to any transportation project as defined in section 3 of P.L. 1984, c.73 (C.27:1B-3), if that project receives federal funding and the awarding agency has been notified by the federal government that it will be classified as a high risk grantee pursuant to 49 C.F.R. 18.12.

d. A prime contractor, subcontractor or subsubcontractor may, after providing seven calendar days' written notice to the party failing to make the required payments, suspend performance of a construction contract, without penalty for breach of contract, until the payment required pursuant to this section is made, if the contractor, subcontractor or subsubcontractor: is not paid as required by this section; is not provided a written statement of the amount withheld and the reason for the withholding; and the payor is not engaged in a good faith effort to resolve the reason for the withholding. The provisions of this subsection d. shall not apply to any transportation project as defined in section 3 of P.L. 1984, c.73 (C.27:1B-3), if that project receives federal funding and the application of this provision would jeopardize the funding because the owner could not meet the federal standards for financial management systems as outlined in 49 C.F.R. 18.20.

e. (1) The rights, remedies or protections provided by this section for prime contractors, subcontractors and subsubcontractors shall be in addition to other remedies provided pursuant to any other provision of State law. To the extent that the provisions of this section provide greater rights, remedies or protections for prime contractors, subcontractors and subsubcontractors than other provisions of State law, the provisions of this section shall supersede those other provisions.

(2) No provision of this section shall be construed as restricting in any way the rights or remedies provided by any other applicable State or federal law to an owner who is a resident homeowner or purchaser with respect to the real property being improved.

f. All contracts for the improvement of structures entered into after the effective date of P.L.2006, c.96 between owners, prime contractors, subcontractors or subsubcontractors shall provide that disputes regarding whether a party has failed to make payments required pursuant to this section may be submitted to a process of alternative dispute resolution. Alternative dispute resolution permitted by this section shall not apply to disputes concerning the bid solicitation or award process, or to the formation of contracts or subcontracts. In any civil action brought to collect payments pursuant to this section, the action shall be conducted inside of this State and the prevailing party shall be awarded reasonable costs and attorney fees.

g. (1) All money paid by an owner to the prime contractor, all money paid by the prime contractor to the subcontractor, and all money paid by the subcontractor to the subsubcontractor, pursuant to the provisions of any contract for the improvement of real property shall constitute a trust fund in the hands of the prime contractor, the subcontractor, or the subsubcontractor, until all claims for labor, materials and other charges incurred in connection with the performance of the contract have been fully paid. A contract for the improvement of real property shall not contain any provision allowing any party to the contract to deviate from the imposition of a trust fund as provided in this subsection, and any provision of the contract to that effect shall be void and unenforceable.

(2) In the event of any violation, misuse, diversion, or any other unlawful use of all or part of the trust funds by a corporate entity, the responsibilities of maintaining and discharging the trust funds shall accrue personally to any corporate officer of the prime contractor, subcontractor, or subsubcontractor, who shall have responsibility for the finances of the project and the obligation to pay subcontractors and subsubcontractors in accordance with the provisions of this section, or to any employee of the corporate entity who has executed a false certification regarding alleged payments to subcontractors or subsubcontractors. The corporate officer, or employee of the corporate entity, shall be held personally liable for his participation in the corporate entity's wrongdoing even if the corporate officer, or employee of the corporate entity, derived no personal benefit.

(cf: P.L.2006, c.96, s.2)

2. This act shall take effect immediately.

STATEMENT

This bill amends section 2 of P.L.1991, c.133 (C.2A:30A-2), which provides for the prompt payment of a prime contractor, subcontractor, or subsubcontractor in connection with a public or private contract. This bill requires, with regard to a contract for the improvement of real property, that all money paid by an owner to a prime contractor, by a prime contractor to a subcontractor, or by a subcontractor to a subsubcontractor, constitutes a trust fund in the hands of the prime contractor, subcontractor, or subsubcontractor, until all claims for labor, materials and other charges incurred in connection with the performance of the contract have been fully paid.

The bill prohibits any contract for the improvement of real property to include a provision allowing any party to the contract to deviate from the imposition of a trust fund as required by the bill.

The bill also provides that in the event of any violation, misuse, diversion, or any other unlawful use of all or part of the trust funds by a corporate entity, the responsibilities of maintaining and discharging the trust funds shall accrue personally to any corporate officer of the prime contractor, subcontractor, or subsubcontractor, or to any employee of the corporate entity who has executed a false certification regarding alleged payments to subcontractors or subsubcontractors. The corporate officer, or employee of the corporate entity, shall be held personally liable for his participation in the corporate entity's wrongdoing even if the corporate officer, or employee of the corporate entity, derived no personal benefit.