As the new year begins, New York State enacted several important legislative changes that will directly affect businesses operations for contractors doing business in the state. These include Senate Bill S2536A, which relates to the inclusion of certain off-site custom fabrication as public work for the purposes of payment of prevailing wage, as well as Senate Bill S5655, which relates to void provisions in construction contracts. Businesses will need to quickly react and plan to manage cash flow and compliance related considerations as a result. Here is what you need to know about the law changes to stay ahead of the curve.
New York State’s amendment to Section 757 of the general business law added language requiring retainage in excess of five percent of a private contract sum as a void provision in a construction contract. Subcontractors typically carry the heavier cash flow burden on the project as labor and materials are fronted while waiting on payment from the prime contractor. The reduction from 10% retainage standard to 5% will decrease the cash withheld in half which will improve subcontractor liquidity, reduce reliance on traditional financing, lower risk of payment delays, and help stabilize contractors that typically operate on smaller margins.
New York State also amended Section 220 of the Labor Law to provide that the prevailing wage law shall apply to the fabrication of various construction materials including wall panel systems, woodwork, cases, cabinets or counters, plumbing, heating, cooling, ventilation/exhaust ducts, and mechanical insulation*. The intent behind the new law was to prevent contractors from circumventing prevailing wage and create more equitable bidding on public work. There is an expected administrative burden accompanied by this bill from contractors in the fact that these offsite workers often work for a multitude of jobs within a given day. The necessity to develop a system of tracking offsite prevailing wage work will become difficult as high volumes of production materials are produced, with the need to allocate labor hours to the work.
The changes to retainage and prevailing wage are not simply administrative tweaks, they reshape how projects are bid, financed, staffed, documented, and audited from start to finish. Business operators and their advisors will need to move decisively to update their internal processes and ensure compliance to reflect the new standards. This overview speaks to the highlights, however the impact lies in the detail of the legislative changes. Taking the time now to digest and plan for these changes will help organizations stay aligned and prepare for what’s ahead.
By: Luke Aguera, CPA, Manager