USA – NEW YORK Law and Practice Contributed by: Lindsey Haubenreich, Joseph Heins, Timothy Moriarty, Kimberly Nason and Matthew Fitzgerald, Phillips Lytle LLP
struction phase. The CMAR holds all the contracts for the subcontractors and commits to delivering the project within a guaranteed maximum price. 7.3 Management of Construction Risk Construction risk is managed by: • indemnification; • warranties; • limitations of liability; • waivers; • insurance provisions; and • retainage. Indemnification is limited by New York General Obli - gations Law Section 5-322.1, which prohibits a party involved in the construction, alteration, repair or main - tenance of a building from contracting with another to indemnify or hold it harmless for injuries or damage to property caused by its own negligence, although the party may require indemnification for damages caused by the negligence of parties other than itself. Warranties are almost always limited in duration by express contract provision. New York General Busi - ness Law Section 777-a specifically creates warran - ties applicable to the sales of new construction homes that include a one-year warranty that the home will be free from defects due to poor workmanship, and a six-year warranty that the home will be free from material defects. Limitations of liability and waivers of damages are lim - ited to the extent that the liability or damages were in contemplation of the parties at the time of enter - ing into the contract, but will not be enforced if they purport to protect a party from liability for conduct that constitutes fraud, gross negligence or wilful mis - conduct. The most common limitation of liability in construction contracts is a waiver of consequential damages. Insurance is often used to address the risks occa - sioned by the limitation on indemnity, and owners and contractors will often require to be added as an addi - tional insured on the contractor’s or subcontractor’s commercial general liability policy, respectively.
Finally, retainage is used to reduce risk and incentivise contractors or subcontractors to complete a project by withholding a portion of payment until agreed-upon milestones are met. New York recently introduced a new law (New York General Business Law Section 756-c) that reduces the amount of retainage that can be withheld from a contractor or subcontractor on a private construction project to 5% of the contract sum for projects with costs that are equal to or greater than USD150,000. Before this law, parties could agree to withhold “a reasonable amount” of retainage. 7.4 Management of Schedule-Related Risk Contract provisions require contractors and sub - contractors to adhere to schedules prepared by the construction manager or architect on behalf of the owner. Owners can receive compensation for delays if provided for in the contract, most often in the form of liquidated damages. Alternatively, owners can recover actual damages to the extent damages can be proven. While not common, contracts will sometimes provide contractors with cash incentives to exceed scheduling milestones or costs below budget. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance The most common form of additional security to guar - antee a contractor’s performance is a performance bond. In most, if not all, public projects and in many private projects, the owner will require the general contractor to post a performance bond. 7.6 Liens or Encumbrances in the Event of Non-Payment Contractors and designers may file liens to encum - ber property in the event of non-payment, pursuant to the New York Lien Law. Generally, in New York, a mechanic’s lien can be filed at any time during the pro - gress of a project, but no later than eight months after the completion of the contract or the final furnishing of labour or materials. For single-family dwellings, a mechanic’s lien must be filed within four months of completion of the contract or the final furnishing of labour or materials. The owner can discharge a mechanic’s lien by depos - iting with the county clerk a payment equal to the amount claimed in the lien, with interest to the time
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