The Right to Financial Information on a Non-Public New York Construction Project
Cash flow is the lifeblood of the construction industry. Contractors/subcontractors/suppliers want to know during the job that the money is there, is flowing, and what security there is if the flow stops.
In New York, rights to this financial information depend upon the type of non-public construction project. Who can ask for (and who must furnish) information varies? No one statute lists the rights.
A subcontractor/supplier can demand that the private owner furnish a copy of the contractor’s construction contract and the job account status between owner and contractor. An owner tells a half-truth by disclosing only the contract sum and amounts currently due. A subcontractor/supplier’s New York mechanics lien is good only if, at filing of the lien, there are moneys due (or in the future moneys will be due) the contractor. A subcontractor/supplier’s lien is ineffective when there are no moneys left in the owner-contractor contract. The subcontractor/supplier performing work needs to regularly check to see if there are moneys left. This cannot be confirmed unless amounts paid to date, changes, credits, and withholdings are disclosed.
An owner borrowing on its equity in the land, by obtaining a building loan, files an affidavit with financial information. The affidavit states the net amount of the loan available for the job, after deducting the cost of the loan (and other present and future expenses and interest). The information is correct on the affidavit’s date but is not updated. If a subcontractor/supplier has already demanded the owner-contractor job account status, it can demand that the owner furnish the lender-owner account history showing interest charges, expenses, advances, charges against the loan, and lender withholdings. The remaining moneys on the loan can be calculated.
A subcontractor can demand that the owner tell the subcontractor within five days of each owner payment to the contractor. However, a subcontractor/supplier cannot inspect a contractor’s approved requisition for line item amounts.
A subcontractor/supplier has a right to information concerning payment bonds. The bond is an additional remedy discouraging filing of mechanics liens. An owner must file a contractor’s payment bond. Few do. An owner desiring a lien-free project is likely, upon request, to provide a copy of a payment bond.
The owner must by law provide the contractor the lot and block number (or project address). The owner must also provide the name of the owner of the land if different from the project owner. A subcontractor/supplier can thus easily prepare a mechanics lien. If there is a change in either owner while the job is ongoing, the contractor is to be given a five-day written notice. Ownership change affects enforcement of a mechanics lien for work previously performed.
New York courts have recognized, for certain types of contracts, one contracting party’s right to demand (of the other) adequate assurance of payment when future performance is jeopardized. No New York court has held a construction contractor has this right. However, a supplier only selling goods can demand adequate assurances.
New York law is complicated on the right during the job to financial information. A contractor or subcontractor/supplier seeking financial information should consult with his or her attorney.