Many states have enacted prompt payment statutes. The purpose is to discourage prime contractors, on both public and private projects, from withholding subcontractor payment on a pretext, in effect gaining interest-free use of those funds. The sanctions for not making prompt payment typically include monthly interest or penalty, as well as reimbursement of the subcontractor’s attorney fees and other costs.
Most state statutes make an exception for payments that are withheld due to a good faith dispute. But does that include any dispute under the contract or must the dispute relate directly to the payment otherwise due? The Supreme Court of California was recently called upon to answer that question, resolving conflicting precedent at the intermediate California Court of Appeal level.
The other case in this issue is from the highest court of New York. The Court of Appeals ruled that a statutory payment bond requirement for private development of public property was not incorporated into a construction contract and could not be read into the contract by virtue of “choice of law” boilerplate language.