USA – NEW YORK Law and Practice Contributed by: Lindsey E. Haubenreich, Joseph P. Heins, Timothy P. Moriarty and Kimberly R. Nason, Phillips Lytle LLP
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. 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 eight months after the completion of the contract or the final furnishing of labor or mate - rials. For single-family dwellings, a mechanic’s lien must be filed within four months of comple - tion of the contract or the final furnishing of labor or materials. The owner can discharge a mechanic’s lien by depositing with the county clerk a payment equal to the amount claimed in the lien, with interest to the time of the deposit, or by posting a bond equal to 110% of the lien.
Warranties are almost always limited in duration by express contract provision. New York General Business Law Section 777-a specifically creates warranties applicable to the sales of new con - struction homes that include a one-year warran - ty 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 limited to the extent that the liability or dam - ages were in contemplation of the parties at the time of entering 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 willful misconduct. The most common limitation of liability in construction contracts is a waiver of consequential damages. 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. Finally, retainage is used to reduce risk and incentivize 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.
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