Relates to voiding certain agreements conditioning the right of a subcontractor's or material supplier's right to commence a lawsuit or arbitration proceeding…

◆ The sponsor's argument

Why Christopher Ryan says this is needed

In 2009, New York General Obligations Law § 5-322.1.2 was amended to prohibit contract provisions conditioning a subcontractor's or materialman's right to file a claim and/or commence an action against a payment bond on the exhaustion of another legal remedy. The 2009 amend- ment was necessary because prime contractors often included language in their subcontracts that required subcontractors to exhaust their lien rights, up to and including foreclosure on the lien, before filing a claim or commencing an action against the prime contractor's payment bond. What this often resulted in was by the time a subcontractor had exhausted its lien remedies, the statute of limitations for commencing an action against the prime contractor's payment bond had run. This legislation further amends New York General Obligations Law § 5-322.1.2 to include, in addition to a claim against a payment bond, any contract provision conditioning a subcontractor's or supplier's right to directly assert claims against a prime contractor on the exhaustion of other legal remedies is against public policy, void and unenforceable. Despite prior amendments intended to protect subcontractors and suppli- ers from unfair contractual barriers to payment, parties with greater bargaining power continue to impose provisions that functionally delay or restrict access to payment remedies. These provisions frequently require subcontractors to: *file and fully litigate mechanic's lien actions through to foreclosure before pursuing payment claims or other breach of contract claims; *exhaust alternative legal processes prior to asserting contractual rights; or *stay otherwise valid claims until separate litigation is completed. Critically, such provisions can cause subcontractors and suppliers to forfeit their legal rights through the running of contractual, and possible, statutory limitations deadlines. While subcontractors are forced to pursue lengthy lien litigation or other remedies with other subcontractors which may result in a determination that does not affect the liability of the prime contractor to the subcontractor, the time period to bring breach of contract claims may expire. In addition, even though a subcontractor may sue a prime contractor on a payment bond, most private improvement projects do not require a payment bond. And, if there is a payment bond, the payment bond may contain a shorter limita- tions period than the statutory six (6) year period for breach of contract actions. This creates. an unfair and unintended forfeiture of otherwise valid claims and exposes smaller subcontractors to significant financial risk in a situation where the subcontractor has not had an opportunity to show liability for breach of contract and other causes of action which otherwise result in damages to the subcontractor. The absence of explicit statutory language covering direct claims against prime contractors has also allowed some parties to argue that these restrictions remain enforceable when applied to breach of contract actions. This legislation closes that loophole and ensures consistent application of public policy protections.

This is the sponsor's own case for the bill, quoted from their memorandum. It is not Agora's description of what the bill does.