Amendments to the Nebraska Construction Prompt Pay Act
This summer, the Nebraska Legislature made changes to the Nebraska Construction Prompt Pay Act which, among other things, changed how expeditiously contractors and subcontractors must get paid. These changes were signed into law as part of Legislative Bill 961 and went into effect on July 18, 2014. The amendments affect only contracts entered into on or after July 18, 2014. The revisions to the Act are as follows:
Changes to Definitions:
The definitions of "contractor" and "subcontractor" were updated to specifically exclude an individual or an entity performing work on a contract for the State of Nebraska or a federal-aid or state-aid project of a political subdivision in which the state makes payments to the contractor or subcontractor on behalf of the political subdivision. Thus, this change limits those individuals and entities that qualify for protection under the Nebraska Construction Prompt Pay Act.
The prior version of the Act did not define the term "substantially complete," which is now defined as "the stage of a construction project when the project, or a designated portion thereof, is sufficiently complete in accordance with the contract so that the owner can occupy or utilize the project for its intended use." This change should serve to reduce debates as to whether or not a project is substantially complete, thereby providing additional guidance as to when retainage must be paid.
Changes to Retainage:
The revisions to the Act also adjusted the timeline under which retainage must be released on a project. In this regard, "[t]he owner or the owner’s representative shall release and pay all retainage for work completed in accordance with the provisions of the contract within 45 days after the project, or a designated portion thereof, is substantially complete. When a subcontractor has performed work in accordance with the provisions of a subcontract and all conditions precedent to payment contained in the subcontract have been satisfied, the contractor shall pay all retainage due such subcontractor within ten days after receipt of the retainage."
The Act now sets a limitation on the amount of retainage that may be withheld and no longer allows an owner to withhold retainage until the entire project is substantially completed. Specifically, an owner, contractor, or subcontractor may only withhold retainage in an amount that does not exceed that which is specified in the contract and this specific amount may not exceed 10 percent. Additionally, so long as the contractor or subcontractor provides satisfactory and reasonable assurances of continued performance and financial responsibility to complete the work and if the scope of work for the contractor or subcontractor is 50 percent complete and the contractor or subcontractor has performed in accordance with the applicable contract, no more than 5 percent of any additional progress payment can be withheld as retainage.
The Act added a new section which provides for a private right of action to any person or entity damaged by a violation of the Act. In addition to damages, a court has discretion to award a plaintiff (but not the defendant) reasonable attorney’s fees and costs.
Owners, contractors, and subcontractors must be familiar with the aforementioned changes because the changes impact when and under what circumstances progress payments may be retained. Furthermore, to the extent that a payment is impermissibly withheld in violation of the Act, the aggrieved party now has a right to recover its attorney’s fees for any such violation. Consequently, the ramifications of a violation of the Act could be much more significant than in the past. If you have questions about the changes to the Act, please do not hesitate to contact one of the members of Koley Jessen’s Construction Industry Practice Area.
by J. Daniel Weidner and Minja Herian