What's happening
This bill requires construction contract retainage to be held in interest-bearing escrow accounts with timely release and added penalties for late payment.
Why it matters
Financing carveout. The escrow requirement would apply across New York but exclude construction contracts financed by a public benefit corporation. The changes would cover contracts entered into on or after the bill’s immediate effective date, not existing contracts.
Ownership shifts. Retained funds would become the contractor’s sole and separate property when deposited, with interest accruing at least at the escrow agent’s prevailing deposit rate. Owners could still retain a reasonable amount by mutual agreement.
Downstream payment clock. Contractors and subcontractors would have five days after receiving retainage to release proportionate amounts to relevant parties. The existing 30-day deadline after final work approval would remain, while owners’ late-payment interest would be owed in addition to escrow interest.
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Who cares
Construction owners
They would need to arrange third-party escrow for covered retainage and direct its release in writing.
Contractors and subcontractors
Their own withholding would be capped at the percentage the owner deposits in escrow, and delayed downstream releases would trigger interest of one percent per month.
Third-party escrow agents
They would hold retained construction funds in separate interest-bearing accounts and deliver them at the owner’s written direction.
Public benefit corporations
Construction contracts they finance would be excluded from the new escrow-deposit requirement.
Headline styles
Protect Construction Payments
Plain English, a few words. Used as the page title.
Sponsors
1 Co-sponsor
History
- Referred to consumer protection
- Referred to consumer protection
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Hold Construction Funds in Escrow
In Assembly Committee · Economic Development · Sponsor Edward Braunstein
Full text
2 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
5871
2017-2018 Regular Sessions
IN SENATE
May 4, 2017
Introduced by Sen. DeFRANCISCO -- read twice and ordered printed, and when printed to be committed to the Committee on Consumer Protection
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 Assembly, 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:
§ 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 deposited 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 article, or the contractor or subcontractor fails to release a proportionate 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-
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD03053-01-7
S. 5871 2
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.
§ 2. This act shall take effect immediately and shall apply to all contracts entered into on or after such effective date.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the general business law, in relation to retention of construction contracts
Purpose of the 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
2001-2002: A.6817/A.9711/S.3708-A - Referred to Rules. 2003-2004: A.4620-C/S.1089-B - Referred to Codes. 2005-2006: A.2721/S.2547 - Passed Assembly in 2005 & 2006. 2007-2008: A.9538/S.1660 - 3rd Reading. Cal. 817. 2009-2010: A.2279/S.754 - Passed Assembly in 2010. 2011-2012: A.5023/S.3180 - Referred to Codes. 2013-2014: A.529/S.1717 - 3rd Reading, Cal. 184. 2015-2016: A.10276/S.37 - Referred to Economic Development.
Fiscal implications
None
Effective date
Immediately
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.