The NY Prompt Payment Act: When Owners and GCs Must Pay Contractors

By Eugene Bondar, Esq. · Updated September 29, 2026

Every New York construction contract runs on a payment clock, but many contractors don’t know the clock is partly set by statute, not just by the contract they signed. The NY Prompt Payment Act (General Business Law Article 35-E) puts hard deadlines on when owners must pay contractors, when contractors must pay subcontractors, and what happens when those deadlines slip.

What the NY Prompt Payment Act covers

Article 35-E applies to a “construction contract,” defined as “a written or oral agreement for the construction, reconstruction, alteration, maintenance, moving or demolition of any building, structure or improvement, or relating to the excavation of or other development or improvement to land, and where the aggregate cost of the construction project including all labor, services, materials and equipment to be furnished, equals or exceeds one hundred fifty thousand dollars” (General Business Law § 756(1)). The definition excludes public works contracts and, among other residential carve-outs, contracts for “an individual one, two or three family residential dwelling or a residential tract development of one hundred or less one or two family dwellings, or any residential construction project where the aggregate size of such project is four thousand five hundred square feet or less.” Within its scope, the statute doesn’t replace the contract; it supplements it. “Except as otherwise provided in this article, the terms and conditions of a construction contract shall supersede the provisions of this article and govern the conduct of the parties thereto” (§ 756-a). But § 757 voids contract provisions that depart from the statute’s floor on payment timing, retainage, suspension of performance, and expedited arbitration.

The payment timeline that matters

“Upon delivery of an invoice and all contractually required documentation, an owner shall approve or disapprove all or a portion of such invoice within twelve business days. Owner approval of invoices shall not be unreasonably withheld nor shall an owner, in bad faith disapprove all or a portion of an invoice. If an owner declines to approve an invoice or a portion thereof, it must prepare and issue a written statement describing those items in the invoice that are not approved” (§ 756-a(2)(a)(i)). The statute lists the grounds on which an owner “may decline to approve an invoice or portion of an invoice,” including “[u]nsatisfactory or disputed job progress,” “[d]efective construction work or material not remedied,” “[d]isputed work materials,” “[f]ailure to comply with other material provisions of the construction contract,” and “[f]ailure of the contractor to make timely payments for labor including collectively bargained fringe benefit contributions, payroll taxes and insurance, equipment and materials.”

“Payment of an interim or final invoice shall be due from the owner not later than thirty days after approval of the invoice” (§ 756-a(3)(a)(ii)). The same structure repeats down the chain: “a contractor or subcontractor shall approve or disapprove all or a portion of such invoice within twelve business days” (§ 756-a(2)(a)(ii)), and “[w]hen a subcontractor has performed in accordance with the provisions of its construction contract, the contractor shall pay to the subcontractor, and each subcontractor shall in turn pay to its subcontractors, the full or proportionate amount of funds received from the owner for each subcontractor’s work and materials based on work or services provided under the construction contract, seven days after receipt of good funds for each interim or final payment, provided all contractually required documentation and waivers are received” (§ 756-a(3)(b)(ii)). The statute also provides that “[p]erformance by a subcontractor in accordance with the provisions of its contract shall entitle it to payment from the party with which it contracts” (§ 756-a(3)(b)(i)). A contractor sitting on money owed to a subcontractor because the owner hasn’t paid isn’t necessarily excused: the pass-through obligation runs from receipt of “good funds,” and pay-if-paid clauses that condition payment entirely on owner payment run into their own enforceability problems under New York law (see West-Fair Elec. Contrs. v. Aetna Cas. & Sur. Co., 87 N.Y.2d 148, 158 (1995), holding that a clause “which forces the subcontractor to assume the risk that the owner will fail to pay the general contractor is void and unenforceable as contrary to public policy set forth in the Lien Law § 34”).

Retainage is capped, and must be released

Under General Business Law § 756-c, “an owner may retain no more than five per centum of the contract sum as retainage. A contractor or subcontractor may also retain no more than five per centum for retainage and in no case shall retainage exceed the actual percentage retained by the owner. Retainage shall be released by the owner to the contractor no later than thirty days after the final approval of the work under a construction contract.” Contractors who assume retainage simply sits until the whole project closes out are often leaving money on the table, or letting an owner hold funds well past the point the statute allows.

Interest on late payment and late retainage

Late payment under the NY Prompt Payment Act isn’t just a collections problem; it’s a statutory one. If a payment “is delayed beyond the due date,” the owner (or, at the next tier, the contractor or subcontractor) “shall pay … interest beginning on the next day at the rate of one percent per month or fraction of a month on the unpaid balance, or at a higher rate consistent with the construction contract” (§ 756-b(1)). The same exposure applies to retainage: an owner, contractor, or subcontractor that fails to release retainage as the article requires “shall be subject to the payment of interest at the rate of one percent per month on the date retention was due and owing” (§ 756-c). That interest is often the leverage that gets a stalled payment moving without a lawsuit, because it turns delay into a measurable, accruing cost for whoever is sitting on the money.

Public projects run on a different statute

Article 35-E governs private work; § 756(1) provides that a construction contract “shall not include any such contract made and awarded by the state, any public department, any public benefit corporation, any public corporation or official thereof, or a municipal corporation or official thereof for construction, reconstruction, alteration, repair, maintenance, moving or demolition of any public works project nor any contract with a contractor or subcontractor which is part of such project.” Contracts “made and awarded by the state, or by any public department, or by any public benefit corporation or by any public corporation or official thereof” run instead under State Finance Law § 139-f, under which “[t]he public owner shall in accordance with the terms of the contract approve and promptly pay the requisition for the progress payment,” “shall retain not more than five per centum of each progress payment to the contractor except that the public owner may retain in excess of five per centum but not more than ten per centum of each progress payment to the contractor provided that there are no requirements by the public owner for the contractor to provide a performance bond and a labor and material bond both in the full amount of the contract” (§ 139-f(1)), and “[w]ithin seven calendar days of the receipt of any payment from the public owner, the contractor shall pay each of his subcontractors and materialmen the proceeds from the payment representing the value of the work performed and/or materials furnished,” with interest on late payment “computed at the rate established in paragraph (b) of subdivision one of section seven hundred fifty-six-b of the general business law” (§ 139-f(2)). For contracts awarded “by a state agency as defined in article eleven-A of this chapter,” payment “shall be made in accordance with the provisions of such article eleven-A” (§ 139-f(1-b)). Confirming which statute applies, and whether a private project even clears the $150,000 threshold, is the first step before relying on either one.

What contractors should do

Read the payment article of your contract against the statute, not just against what the other side is telling you, including how it handles pay-if-paid and pay-when-paid clauses, which interact with the statute’s pass-through deadlines rather than overriding them outright. Track the twelve-business-day approval clock and the thirty-day payment clock from the moment an invoice goes out, and put late payment and retainage demands in writing early, before informal reminders turn into a real cash-flow problem. When a payment dispute does stall, the Prompt Payment Act’s interest and remedies usually work best alongside other tools available to unpaid contractors, including mechanics lien rights on private projects.

This firm represents contractors, subcontractors, and owners in New York and Northern New Jersey on prompt-payment, retainage, and lien disputes as part of its construction & infrastructure practice. The initial consultation is free.

Related services: Construction & Infrastructure · Rockland County Construction Disputes

Attorney Advertising. This post is for general informational purposes only and does not constitute legal advice. Coverage, deadlines, and interest rates under New York’s prompt payment statutes depend on the project, the contract, and whether the work is public or private; consult an attorney about your specific situation.

Frequently asked questions

Does the NY Prompt Payment Act apply to every construction contract?

No. General Business Law Article 35-E applies to a "construction contract" where "the aggregate cost of the construction project including all labor, services, materials and equipment to be furnished, equals or exceeds one hundred fifty thousand dollars" (§ 756(1)). The definition excludes contracts "made and awarded by the state, any public department, any public benefit corporation, any public corporation or official thereof, or a municipal corporation or official thereof" for public works, and contracts for "an individual one, two or three family residential dwelling or a residential tract development of one hundred or less one or two family dwellings, or any residential construction project where the aggregate size of such project is four thousand five hundred square feet or less," among other residential exclusions. Public work runs under a separate statute, State Finance Law § 139-f, which covers contracts awarded "by the state, or by any public department, or by any public benefit corporation or by any public corporation or official thereof". Under § 756-a, "[e]xcept as otherwise provided in this article, the terms and conditions of a construction contract shall supersede the provisions of this article," so the specific contract still has to be read alongside the statute.

Can a contract waive the NY Prompt Payment Act's protections?

Article 35-E limits how far parties can contract around it. General Business Law § 757 declares "void and unenforceable" any construction contract provision "establishing payment provisions which differ from those established in subdivision three of section seven hundred fifty-six-a and section seven hundred fifty-six-b," any provision "requiring retainage ... in an amount exceeding five percent of the contract sum," any provision "stating that a party to the contract cannot suspend performance under the contract if another party to the contract fails to make prompt payments," and any provision making the statute's expedited arbitration unavailable. But the billing cycle is left to the parties: they "may, by mutual agreement, establish a billing cycle," and absent agreement "the billing cycle shall be the calendar month within which the work is performed" (§ 756-a(1)). Construction contracts vary widely in how they handle documentation requirements, change orders, and dispute procedures, so reading the actual payment article, not just relying on the statute, is still necessary.

What can a contractor do if payment is late under the Prompt Payment Act?

Interest accrues "at the rate of one percent per month or fraction of a month on the unpaid balance, or at a higher rate consistent with the construction contract" (General Business Law § 756-b(1)). If the owner fails to approve or disapprove an invoice, or to pay "the undisputed invoice amount," within the statutory time limits, "the contractor may suspend contractually required performance, only after providing the owner written notice and an opportunity to cure"; the notice must be given "at least ten calendar days before the contractor's intended suspension" (§ 756-b(2)(a)). Subcontractors have a parallel suspension right on notice to both the owner and the contractor (§ 756-b(2)(b)), and either may refer an unresolved complaint to the American Arbitration Association for expedited arbitration (§ 756-b(3)). Those remedies typically sit alongside other tools (mechanics lien rights on private projects, payment bond claims on public projects, and ordinary breach-of-contract claims), and which one makes sense first depends on the facts and the deadlines already running.