S1217-2013 Actions

• May 15, 2013: COMMITTEE DISCHARGED AND COMMITTED TO INFRASTRUCTURE AND CAPITAL INVESTMENT
• Jan 9, 2013: REFERRED TO CONSUMER PROTECTION

S1217-2013 Memo

BILL NUMBER:S1217

TITLE OF BILL:
An act
to amend the general business law, in relation to retention of
construction contracts

PURPOSE OR GENERAL IDEA OF BILL:
This bill would require retainage held on private construction
projects to be placed in an interest-bearing escrow account for the
benefit of the parties from whom the retainage is being held.

SUMMARY OF SPECIFIC PROVISIONS:
This bill accomplishes a much needed construction industry reform.
Owners would continue to have added security of holding retain age on
progress payments. However, the interest on the held money would be
earned for the benefit of the parties, from whom retainage is being
held, thus taking some of the sting out of having significant amounts
of earned money held for substantial periods of time.

JUSTIFICATION:
Retainage is the practice of withholding a portion of the earned
progress payment of a construction contractor, subcontractor or
supplier (hereinafter the "contractor") for work performed, for
release at a later time. Retainage is a long-standing tradition in
the building industry, and unique to the construction process, as it
withholds funds already earned by the contractor.

Retainage represents money which has been previously earned by
contractors. That is, retainage is already the subcontractor's money.
As such, it is the contractors from whom retainage is held who should
benefit from investment earnings on that money. Furthermore, by
having retainage placed in an escrow account, contractors will have
far more assurance that they will actually receive the money which
they have earned in the event an owner's financial status becomes
questionable later on.

PRIOR LEGISLATIVE HISTORY:
2001-02: A.9711 Judiciary
2003-04: A.4620 Codes
2005-06: A.2721 Passed Assembly 2007-08: A.9538 3rd Rdg. Cal. 817
2009-10: A.2279 Passed Assembly 2011-12: S.3180/A.5023

FISCAL IMPLICATIONS: None.

EFFECTIVE DATE: Immediately.

S1217-2013 Text

 S T A T E   O F   N E W   Y O R K
 
 S. 1217                                                   A. 529
 2013-2014 Regular Sessions
 SENATE - ASSEMBLY
 (PREFILED)
 January 9, 2013
 
 IN  SENATE  --  Introduced by Sen. DeFRANCISCO -- read twice and ordered
 printed, and when printed to be committed to the Committee on Consumer
 Protection
 IN ASSEMBLY -- Introduced by M. of A. CUSICK, HOOPER, ROBINSON  --  read
 once and referred to the Committee on Economic Development
 AN  ACT  to  amend the general business law, in relation to retention of
 construction contracts
 THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM
 BLY, DO ENACT AS FOLLOWS:

 

Section  1. 

Section  756-c  of  the general business law, as added by
 chapter 127 of the laws of 2002, is amended to read as follows:

 

S 756-c. Retention. By mutual agreement of  the  relevant  parties  an
 owner  may retain a reasonable amount of the contract sum as retainage[.
 A]  AND FOR ANY CONSTRUCTION CONTRACTS, EXCLUDING CONSTRUCTION CONTRACTS
 FINANCED BY A PUBLIC BENEFIT CORPORATION, SUCH RETAINAGE SHALL BE DEPOS
 ITED IN A SEPARATE INTEREST BEARING ESCROW ACCOUNT WITH  A  THIRD  PARTY
 ESCROW  AGENT.  AS  OF  THE  TIME  OF  THE DEPOSIT OF THE RETAINAGE, THE
 RETAINED FUNDS SHALL BECOME  THE  SOLE  AND  SEPARATE  PROPERTY  OF  THE
 CONTRACTOR.  INTEREST  ON THE RETAINED FUNDS SHALL ACCRUE AT AN INTEREST
 RATE AT LEAST EQUAL TO THE PREVAILING INTEREST RATE PAID ON DEPOSITS  BY
 THE  ESCROW AGENT. ALSO, A contractor or subcontractor may [also] retain
 a reasonable amount for retainage so long as the amount does not  exceed
 the  actual  percentage  [retained]  DEPOSITED  IN  ESCROW by the owner.
 [Retainage] THE ESCROWED RETAINAGE shall  be  released  by  the  [owner]
 OWNER'S  WRITTEN  DIRECTION  TO THE ESCROW AGENT TO DELIVER THE ESCROWED
 RETAINAGE to the contractor no later than thirty days  after  the  final
 approval of the work under a construction contract. In the event that an
 owner  fails to release THE ESCROWED retainage as required by this arti
 cle, or the contractor or subcontractor fails to release a proportionate
 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
 [ ] is old law to be omitted.
 LBD04996-01-3
 
       S. 1217                             2                             A. 529
 amount of retainage to the  relevant  parties  WITHIN  FIVE  DAYS  after
 receipt  of  THE  ESCROWED  retainage  from  the  owner, (I) the owner[,
 contractor, or subcontractor, as the case may be, shall  be  subject  to
 the payment of interest at the rate of one percent per month on the date
 retention  was  due and owing] SHALL BE SUBJECT TO THE PAYMENT OF INTER
 EST, IN ADDITION TO THE ESCROW INTEREST, AT THE RATE OF ONE PERCENT  PER
 MONTH  COMMENCING  ON THE DATE THE RETAINAGE WAS DUE TO BE RELEASED FROM
 ESCROW; AND (II) THE CONTRACTOR OR SUBCONTRACTOR, AS THE  CASE  MAY  BE,
 SHALL  BE  SUBJECT TO THE PAYMENT OF INTEREST ON THE AMOUNT OF RETAINAGE
 IT HOLDS AT THE RATE OF ONE PERCENT PER MONTH COMMENCING ON THE DATE THE
 RETAINAGE WAS DUE TO BE RELEASED BY SUCH CONTRACTOR OR SUBCONTRACTOR.
 

S 2. This act shall take effect immediately and  shall  apply  to  all
 contracts entered into on or after such effective date.

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