USA - NEW YORK Law and Practice Contributed by: Adam S. Walters, Erin C. Borek, Timothy P. Moriarty and Kelly E. Marks, Phillips Lytle LLP
by delays, instead limiting relief from delays to time extensions. Insurance is often used to address the risks occasioned by the limitation on indemnity, and oftentimes owners and contractors will require they be added as an additional insured on the contractor’s or subcontractor’s commercial gen - eral liability policy, respectively. In addition, an owner may participate in an own - er-controlled insurance program (OCIP), which is an insurance policy held by a property owner during the project and covers all liability and losses from the project. Contractors may par - ticipate in a contractor-controlled insurance pro - gram (CCIP), or wrap-up insurance, which pro - tects the general contractor, its subcontractors and the project owner from liability and losses. 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 con - tract 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. Alterna -
tively, owners can recover actual damages to the extent damages can be proven. While not com - mon, contracts will sometimes provide contrac - tors 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 guarantee a contractor’s performance is a per - formance bond. In most, if not all, public pro - jects and in many private projects, the owner will require the general contractor to post a per - formance bond. It is becoming popular for general contractors to use a subcontractor default insurance (SDI), often called “subguard”, insurance policy in lieu of a subcontractor performance bond for pri - vate projects. Such a policy shifts the burden of losses resulting from a subcontractor’s default to the insurance company, and provides coverage for losses or damages sustained in the event of a subcontractor’s or supplier’s default. Further, the subguard policy covers all subcontractors on a given project, or on an annualised basis for all projects combined. However, the insured (general contractor) maintains the responsibility for determining whether or not the subcontractor will be pre-qualified and thus accepted under the subguard programme. Also, the general contrac - tor is responsible for resolving the subcontractor default issues, although the costs of completing the work are covered. 7.6 Liens or Encumbrances in the Event of Non-payment Contractors and designers may file liens to encumber property in the event of non-payment pursuant to New York Lien Law. Generally, in New York, a mechanic’s lien can be filed at any time during the progress of a project, but no later than
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