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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

January 7, 2021

NYS Governor Cuomo Signs "Substantial Completion" Bill

On December 15, 2020, NYS Governor Cuomo signed S.7664/A.9117, the Empire State Subcontractors Association’s (ESSA) “Substantial Completion” bill, into law. This legislation amends provisions of the New York State Finance Law and the New York State General Municipal Law to expand the definition of substantial completion as it relates to construction contracts on public projects.

The intent of the legislation is to clarify when construction on a public works project has reached substantial completion, an important milestone triggering the reduction of the allowable retainage the owner withholds from the contractor from 5 percent to no more than two times the value of any remaining items of work as set forth in the punch list. The proposed bill included a definition of substantial completion and prescribed timelines and procedures for public owners and contractors to manage the contract payment process for retainage once substantial completion has been reached.

While the Governor’s Office opposed codifying a specific definition of substantial completion in the law, the new legislation is still good news for contractors, as public works contracts now must define what is meant by the term substantial completion. It also requires public owners to provide the prime contractor with a complete punch list no later than 45 business days after substantial completion has been reached. The prime contractor, in turn, must provide subcontractors with their respective portions of the punch list within seven days thereafter. The full amended language regarding the punch list procedure will read:

Not later than forty-five business days after the date when the project has reached substantial completion, as that term is defined in the contract or as it is contemplated by the terms of the contract, the public owner shall submit to the contractor a written list describing all remaining items to be completed by the contractor.

These changes are widely considered a win for prime and subcontractors, as they clarify that substantial completion is a milestone that is reached before a punch list is generated and provided to the contractor. By requiring public owners to provide the contractor with a complete punch list no later than 45 business days after substantial completion, the contractor is able to complete the punch list, close out the project, and receive timely payment of the remaining retainage. The upshot is that the separate and distinct definitions of “substantial” and “final” completion will no longer be confused, conflated, or used as justification by public owners for withholding the full 5 percent retainage until all items on the punch list have been completed.

If you have any questions regarding this alert, please contact Jim Domagalski, Construction & Surety Practice Area chair, at jdomagalski@barclaydamon.com; Sarah O’Brien at sobrien@barclaydamon.com; or another member of the firm’s Construction & Surety Practice Area.

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