Amendments to the Nebraska Construction Prompt Pay Act

On July 18, 2014, amendments made to the Nebraska Construction Prompt Pay Act will go into effect with regard to contracts entered into on or after that date.  These revisions were initially proposed in January 2013 (LB 373); however, they were not approved until April 2014 as a part of LB 961.  Specific amendments to the Act include the following:

1. Neb. Rev. Stat. § 45-1202(1) and (6) revises the definitions of a “contractor” and a “subcontractor” to exclude those individuals or entities 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 on behalf of the political subdivision.

2. Neb. Rev. Stat. § 45-1202(7) defines “substantial completion” to be “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 term was previously not defined in the Act.)

3. Neb. Rev. Stat. § 45-1203(3) is new and requires the owner or owner’s representative to release and pay all retainage within 45 days after the project, or a designated portion thereof, is substantially complete.  Further, when a subcontractor has performed its work and all conditions precedent to payment contained in the subcontract have been satisfied, § 45-1203(3) requires the contractor to pay all retainage due to that subcontractor within 10 days of receiving the retainage payment from the owner.  (Notably, the definition of a contractor in the Act includes upstream subcontractors and not just the general contractor on a project.)

4. Neb. Rev. Stat. § 45-1204 is amended to make clear that an owner, contractor, or subcontractor may only withhold retainage in an amount not to exceed the amount specified in the applicable contract, which may not exceed 10 percent.  The prior act did not set a limitation on the amount of retainage that could be withheld.  Further, § 45-1204 states that when the work is 50 percent complete and the contractor or subcontractor has performed in accordance with the provisions of its contract, then no more than 5 percent of additional progress payments can be withheld as retainage if the contractor or subcontractor has provided “satisfactory and reasonable assurances” of (a) continued performance and (b) financial responsibility to complete the work.

5. A new section was added that allows a private right of action to any person or entity damaged by a violation of the act.  Further, a Court may award a plaintiff reasonable attorney’s fees and costs as the Court determines is appropriate.  Notably, this section is not reciprocal in that a defendant who successfully defeats a claim brought under this statute is not entitled to claim attorney fees and costs by this statute.

The amendments that were proposed as a part of LB 373 in 2013 included additional changes that were not a part of the final approved bill.  Those proposals that were not adopted and were not included in the final version of the passed amendments include the following:  (1) contractors would have been required to place proceeds intended for the payment of subcontractors into a separate trust account; (2) the maximum amount of retainage allowed to be specified in a contract would have been no more than 5 percent, and (3) a Court would have been required to award attorney fees and costs to the “prevailing party” (in other words, a successful defendant would have been able to recover its attorney fees and costs, which is not allowed under the amended statute that was passed).  Again, these proposals were not passed in the final statutory amendments.

If you have any questions or need assistance, please contact one of Woods Aitken’s Construction Attorneys. For additional construction news, tips, and updates, we encourage you to view our Construction E-brief archives.