Provides for a reasonable amount of construction contract sum to be deposited in a separate interest bearing escrow account with a third party escrow agent; provides further that the owner shall be subject to the payment of interest, in addition to the escrow interest, at the rate of one percent per month and the contractor or subcontractor shall be subject to payment of interest on the amount of retainage it holds at the rate of one percent per month.
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
FISCAL IMPLICATIONS: None.
EFFECTIVE DATE: Immediately.
STATE OF NEW YORK ________________________________________________________________________ S. 3180 A. 5023 2011-2012 Regular Sessions S E N A T E - A S S E M B L Y February 10, 2011 ___________IN SENATE -- Introduced by Sens. DeFRANCISCO, JOHNSON, O'MARA -- 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 -- Multi-Sponsored by -- M. of A. GUNTHER, HOOPER, MAGEE, PHEFFER -- 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 proportionateEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD05175-01-1 S. 3180 2 A. 5023
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.