New Jersey Construction Law Decision Examines Prompt Payment Act

One of the most difficult problems in New Jersey construction law for contractors and subcontractors is getting paid.  Fortunately, a powerful remedy exists in the New Jersey Prompt Payment Act.  A recent appellate court decision examined the New Jersey Prompt Payment Act in the case of Jo-Med Contracting Corp. vs. City of Linden.

 

Background

The City of Linden contacted Jo-Med to submit a bid for emergency repair work on approximately 20 feet of sewer repair, together with approximately 30 feet of related curb replacement.  Jo-Med submitted a bid for $25,000 based on the job description provided by the City engineer; the bid stated that the cost would be higher if Jo-Med ran into unforeseen problems not apparent in the City’s description, in which case it would bill the City on a time and materials basis.  Jo-Med was awarded the contract.  The City’s engineer told Jo-Med’s owner that he would “work with him for additional charges to finish the work.”

After Jo-Med removed the asphalt it discovered that the hole was filled with three feet of water covering the sewer main.  Jo-Med had to use three pumps to remove the water, which significantly delayed the job.  The engineer acknowledged that he told Jo-Med that it would be paid and to submit an invoice for time and materials.  J-Med completed the job.

There was another rupture outside the area where Jo-Med did its work.  The City claimed that it was unknown whether this was related to the rupture Jo-Med repaired, but the City brought in another contractor to repair the other section and alleged that Jo-Med failed to properly secure a pipe, although it never informed Jo-Med of this.  It also later took the position that while Jo-Med did the work it contracted to do, it was somehow at fault because it didn’t completely open the sewer line because of another rupture; again, it never informed Jo-Med of this.

The City’s engineer asked Jo-Med to submit a final invoice explaining all additional charges, but again never mentioned any issues with its work.  On March 2, 2020, Jo-Med sent a final invoice for $106,708.20. More than one month later, the City’s engineer offered to pay Jo-Med $75,000 for the work.  The City never paid Jo-Med and never sent any written dispute of its work.

Jo-Med filed suit against the City in the Law Division of the Superior Court of New Jersey in Union County for breach of contract, breach of the covenant of good faith and fair dealing, and violation of the New Jersey Prompt Payment Act.  Based on the above facts, Jo-Med filed a motion for summary judgment, asking the trial judge to grant judgment in its favor because there was no question of fact which needed to be determined by a jury.  The trial judge agreed and awarded judgment to Jo-Med in the amount of $194,794.43 for the unpaid balance, interest, attorneys fees and litigation costs, and dismissed Linden’s counterclaims.  Linden appealed to the Appellate Division of the Superior Court of New Jersey

 

Appellate Division Affirms Payment to the Contractor Under the New Jersey Prompt Payment Act

The Appellate Division examined the matter under the New Jersey Prompt Payment Act and affirmed the trial judge’s decision.

The Appellate Division explained that:

…the statutory plain language is clear. The PPA requires timely payment, ‘[i]f a prime contractor has performed in accordance with the provisions of a contract with the owner.’  The PPA provides, ‘the owner shall pay the amount due to the prime contractor… not more than [thirty] calendar days after the billing date.’ The PPA defines a ‘[p]rime contractor’ as ‘a person who contracts with an owner to improve real property.’ ‘Improve’ is defined as ‘to build, alter, repair or demolish any structure upon, connected with, on or beneath the surface of any real property; to excavate, clear, grade, fill or landscape any real property;… to furnish construction related materials,’ among other things. ‘Real property’ is defined as ‘the real estate that is improved upon or to be improved upon.’  Additionally, ‘[s]tructure’ is defined as ‘all or any part of a building and other improvements to real property.’ Notably, the definition of ‘structure’ contains an ‘and’ between ‘building’ and ‘other improvements to real property.’ We observe the clear purpose of the PPA is to ensure that contractors and subcontractors ‘are fully and promptly paid for their work.’

The PPA provides for contracted work to be paid as follows: ‘[t]he billing shall be deemed approved and certified [twenty] days after the owner receives it unless the owner provides, before the end of the [twenty]-day period, a written statement of the amount withheld and the reason for withholding payment.’ The PPA further provides a public entity payment provision for a: ‘governing body to vote on authorizations for each periodic payment, final payment or retainage monies, the amount due may be approved and certified at the next scheduled public meeting of the entity’s governing body, and paid during the entity’s subsequent payment cycle.

The Appellate Division found that the trial judge found that the sewer line was an improvement to real property because it was attached to the adjacent houses on the street.  Thus, because Jo-Med was making improvements to real property and the City did not dispute its invoice within 20 days, and thereafter failed to pay Jo-Med within the required time, the court found that City violated the New Jersey Prompt Payment Act and upheld the trial judge’s award to Jo-Med in its entirety.

 

The Takeaway

Invoices must be disputed in writing within 20 calendar days or owners must pay their contractors and contractors must pay their subsidiaries withing 30 calendar days.  This is a hard rule with significant consequences.  There is an exception to the 30 day payment requirement for governmental entities.  They may submit the payment to the governing body for approval at its next regularly scheduled meeting, and the invoice shall be paid within its next payment cycle.  However, the City did not dispute the invoice within 20 days and therefore was liable anyway.

The new Jersey Prompt Payment Act is therefore a powerful tool for contractors and subcontractors to be paid in a timely fashion for acceptable work.

 

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Our New Jersey construction attorneys represent owners, contractors, subcontractors and vendors in all aspects of New Jersey construction law, including disputes and litigation under the New Jersey Prompt Payment Act.  Call us at (973) 890-0003 or fill out the contact form on this page to schedule a consultation with one of our New Jersey construction attorneys.  We can help.