What You Should Know About Prompt Pay in New Jersey
The idea of prompt payment in construction may seem like a myth. The construction industry is plagued by slow payment cycles – there is little about it that is “prompt.”
Fortunately, some states try to speed up the payment cycle by implementing statutory guidelines for prompt payment. New Jersey is one of those states.
According to author Paul W. Norris in The New Jersey Prompt Payment Act, “By pleading a cause of action under the Prompt Payment Act in construction litigation, a contractor may shorten the time frame when they receive payment from an owner or an upper-tier contractor.”
Prompt Pay | 30 Days & 10 Days
In New Jersey, if the general contractor has complied with the contractual provisions, the owner is to remit payment “…not more than 30 calendar days after the billing date.” [N.J.S.A. 2A:30A-2a]
Then, once the general contractor has received its payment, it must remit payment to its subcontractors (and subs to the sub-subs) “…within 10 calendar days of the receipt.” [N.J.S.A. 2A:30A-2b]
What Happens if a Party Fails to Pay Promptly?
According to N.J.S.A. 2A:30A-2c, 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%. “
Norris advises, the consequences of failing to pay timely don’t stop with the addition of interest penalties. Parties, who have given proper notice, can halt work until payment issues are resolved.
“…under subsection D a contractor, subcontractor, or sub-subcontractor may, after providing seven days written notice of the failure to tender timely payment, suspend performance of the contract without penalty for breach of contract, until such time as the required payment is made.”
Going to Court? Winner Takes All
New Jersey statute is quite clear. If the disputes make their way to litigation, the prevailing party will be awarded costs and attorney fees.
“In any civil action brought to collect payments pursuant to this section… the prevailing party shall be awarded reasonable costs and attorney fees.” [N.J.S.A. 2A:30A-2f]
Bonus: learn more about mechanic’s lien & bond claim rights in New Jersey when you read 21 Facts and Features of New Jersey Lien and Bond Claim Rights
Review this week’s flipbook to learn which states require the preliminary notice be served before furnishing, after furnishing or ASAP. Click to download Flipbook: Serve the Preliminary Notice Before or After
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