States enact “prompt payment” laws to help ensure that construction businesses and professionals are paid for their services within a reasonable time. New Jersey’s law applies to both public and private construction projects.
The law applies to “progress payments” as well as final payments. It assumes that the work meets the provisions of the contract and is approved by the owner, prime contractor and any other authorized authorities.
What kind of regulations are set by this law? The following is a brief overview of how the law applies to private construction projects.
Deadlines
Prime contractors must be paid within 30 days of the payment due date listed in the contract. These contractors are then required to pay their subcontractors and suppliers within 10 days after they receive payment. These deadlines apply unless the contract specifies something else.
Penalties
Unpaid balances start accruing interest at “prime plus one,” which is the prime rate plus 1%. If a party takes legal action for lack of payment, whichever party wins is entitled to receive reasonable costs as well as attorney fees.
What actions can be taken if prompt payment isn’t made?
Under the law, all contractors, including subcontractors and sub-subcontractors, can suspend their work as long as they’ve provided at least 7 days written notice of the suspension.
If a party still doesn’t receive their payment, they can send a Notice of Intent to Lien and a Prompt Payment Demand Letter to the party that owes them. If that doesn’t work, it may be necessary to go to court.
Note that some of the details provided above are different for public works projects. All construction professionals must know their rights and responsibilities under the prompt payment law for every project they undertake. This can help prevent unnecessary financial and legal issues. Getting early and experienced legal guidance can help with any questions or concerns.
