The Problem: Getting Paid
One of the most important considerations for construction contractors and subcontractors is getting paid for the work they perform. A recent construction law opinion examined some of the issues which contractors and subcontractors face under New Jersey construction law when seeking to get paid for their work.
The J&M Interiors Case
The consolidated case of J&M Interiors, Inc. vs. Centerton Square Owners, LLC, involved subcontracts between a general contractor, Petore Associates, Inc., and two of its subcontractors, J&M Interiors, Inc., and Breaker Electric, Inc., for renovation work on several Burlington Coat Factory stores. In each instance the subcontractors completed their work but received only partial payment from Petore, and so sued for the balance. Petore claimed the balance wasn’t due because the subcontracts contained identical clauses providing that payment would not be due to the subcontractors until Petore was paid on the project. Petore was paid in full, except for ten percent retainage required by the prime contract between Petore and the owner. The trial judge in the Superior Court disagreed and awarded the subcontractors the full amount they sought, $209,939.09 plus interest and fees for Breaker, and $107,285.80 for J&M. These amounts included the balance on the contract amount plus change orders.
Petore appealed to the Appellate Division of the Superior Court of New Jersey. The Appellate Division rejected all of Petore’s arguments.
The Appellate Division’s Decision
First, the Appellate Division explained that the condition precedent requiring that the general contractor be paid before paying the subcontractors did not bar payment in this case because Petore had been paid for all the work with only the retainage withheld, which did not void the necessity for payment in full to the subcontractors.
Second, Petore argued that a waiver of claims to recover lost profits except on work performed and “other indirect damages” barred the subcontractor’s rights to college. However, the Appellate Division explained that the New Jersey Prompt Payment Act gives contractors and subcontractors the right to sue for full payment for work actually performed if they are not timely paid. While contractors or subcontractors may waive their rights under the Prompt Payment Act, such a waiver can only be enforced if it clearly and unambiguously shows that the subcontractors knowingly waives their rights under the Act. The clause at issue in this case was not a clear and unambiguous statement of the knowing intent to waive rights under the Prompt Payment Act, and therefore could not be enforced against the subcontractors as Petore argued it should be interpretted.
Finally, Petore argued that the subcontractors waived their right to payment by signing partial construction lien waivers covering the work they performed. However, the Appellate Division explained that the lien waivers could not change the language of the contract requiring payment because there was no consideration for any exchange. For any contract, a mutual exchange of consideration is required; in the case of construction contracts, this generally involves an exchange of services and material for payment of money. Here, since Petore did not offer anything new of value to the subcontractors in return for a reduction in the amount of payment due, there was no valid consideration to support an amendment to the contract.
The bottom line is that New Jersey construction law, including the Prompt Payment Act, gives contractors and subcontractors tools to enforce their right to get paid for what they do.
McLaughlin & Nardi, LLC’s New Jersey construction lawyers represent contractors, subcontractors, owners and venders in all aspects of New Jersey construction law. Call us of fill in the contact form on this page to schedule an appointment with one of our New Jersey construction attorneys. We can help.