Schools and Local Governments Urge Governor to Veto Legislation

Change in law would drive up construction costs

ALBANY, NY (12/07/2015)(readMedia)-- The New York State Association of School Business Officials (NYSASBO), the New York State Conference of Mayors (NYCOM) and the Association of Towns urge the Governor to veto legislation (S.2931 Libous/ A.796 Braunstein) that was recently sent to him by the Legislature, which would make the construction process for schools and local governments potentially more costly and inefficient.

Under current law, public entities may retain up to five percent of each progress payment made to the general contractor for work completed. The retainage or money held back in reserve is used as leverage to insure that the construction work is done in a timely manner according to bid specifications with quality materials.

"Retainage ensures that public construction projects will be completed on time, on budget and with quality work and materials." Said Gerry Geist, Executive Director of the Association of Towns.

The bill recently sent to the Governor would exclude material suppliers, like lumber, bricks, asphalt, etc, from the five percent retainage provision. This proposed change in the law would undermine the leverage public entities have with general contractors and leave them vulnerable to damaged or defective materials with little recourse to remedy these issues if the materials supplier receive their payments in full.

"At a time when local governments are facing some of their greatest fiscal challenges and construction costs -- like many other municipal expenditures -- are on the rise, it is essential that safeguards, such as retainage, are kept in place to protect local governments and their taxpayers from increased risk, project delays and rising costs," said Peter A. Baynes, Executive Director of the New York State Conference of Mayors.

Current law already requires the general contractor to pay their sub-contractors and material suppliers within seven days of receiving payment from the public entity. Contractors negotiate their terms of delivery and payment with subcontractors, or material suppliers, without the participation of the project's consumer, i.e. the school district or local government. As they are not privy to the terms of such contracts, capital project consumers are not able to verify that the correct materials have been delivered and installed properly.

The five-percent retainage holds suppliers accountable for the agreed-upon work and materials. This protects public and private entities from potentially low-quality or stalled projects, unfinished work, and cost overruns. Under current law, all parties are under contract to receive the payments or products that they agree to; no one is shorted anything as long as they uphold their part of an agreement. Retainage is a long standing practice in both private and public sector construction projects that has worked well for decades.

"School districts need construction projects to be completed in a timely manner with quality materials in order to minimize the impact on their students. No community should have to pay its way through a long legal battle while students are subjected to a poor learning environment," stated NYSASBO Executive Director Michael J. Borges.