New York rewrote one of the most important payment rules in private construction in late 2023, and Keith DeMatteis notes that many contractors are still adjusting to how much it changes their cash flow. The update limits how much money can be held back from contractors until a job is done, and it shifts when they can ask for their final payment.
For an industry that runs on tight margins, those two changes can make a noticeable difference in how firms bid, borrow and plan.
A Quick Look at Retainage
Retainage is the portion of each progress payment that a project owner holds back until the work is finished. It gives owners leverage to make sure contractors complete the job and correct any defects.
The practice usually passes down the payment chain. A general contractor whose payments are reduced will often hold back a similar share from its subcontractors, who may do the same with their suppliers. On large projects, that held-back money can add up to hundreds of thousands of dollars and remain unpaid for months.
Before the amendment, New York’s Prompt Payment Act allowed owners to retain what it called a reasonable amount. In practice, that left the percentage open to negotiation, and 10 percent was a common figure on many projects.
What the 2023 Amendment Changed
Governor Kathy Hochul signed the amendment to the state’s Prompt Payment Act on November 17, 2023. It applies to private construction contracts in New York valued at more than $150,000 that were signed on or after that date.
The main changes are:
- Retainage is capped at 5 percent of the contract sum
- The cap applies to everyone in the payment chain, from owners down to subcontractors
- Parties cannot write around the cap in their contracts
- Contractors can submit a final invoice once a project reaches substantial completion
- Retainage that is not released on time earns interest at 1 percent per month
The existing rule requiring owners to release retainage within 30 days of final approval of the work remains in place.
Why Substantial Completion Matters
One of the less discussed changes may have the biggest practical effect. Under the old rule, a contractor generally could not submit a final invoice until every obligation in the contract was finished, including the smallest punch list items.
Substantial completion is reached when a building can be used for its intended purpose, even if minor work remains. Allowing a final invoice at that stage means contractors can start the payment process sooner instead of waiting on details that may take weeks to wrap up.
For subcontractors whose work finished early in a project, such as excavation or foundations, earlier invoicing can shorten what was often a long wait.
The Effect on Cash Flow
The difference between 10 percent and 5 percent retainage can be significant. On a $3 million contract, a 10 percent holdback ties up $300,000, while a 5 percent cap limits it to $150,000. That is $150,000 more available for payroll, materials and other jobs.
Slow payment has a measurable cost across the industry. Rabbet’s 2025 Construction Payments Report estimated that slow and inconsistent payments cost U.S. construction about $299 billion that year. Laws that limit how long and how much money can be held back address part of that pressure.
Smaller firms stand to gain the most. Companies with limited cash reserves have often avoided larger projects because they could not afford to have a large sum withheld for months. A lower cap can make those projects more manageable.
What Owners and Developers Should Know
The amendment does not remove the owner’s protection. Five percent still provides meaningful leverage to make sure work is completed properly, and owners keep the right to approve the work before final release.
What changes is the planning. Owners and developers now need to account for the lower cap in their contracts and project budgets and to track release deadlines closely, since late retainage carries interest. Clear definitions of substantial completion in each contract can prevent disputes about when a final invoice is allowed.
Juggling Old and New Contracts
Because the law applies only to contracts signed on or after November 17, 2023, many firms are working on projects under both the old and new rules at the same time. Keeping track of which contracts fall under which rules has become part of everyday financial management.
Contractors are also paying closer attention to:
- how each contract defines substantial completion
- the date each contract was signed
- whether the contract value crosses the $150,000 threshold
- when final approval is expected, which starts the 30-day release clock
Because the details can vary from project to project, many firms review their contract templates with legal counsel to make sure they line up with the updated law.
A Small Number With a Large Effect
A shift from an open-ended reasonable amount to a firm 5 percent may look like a minor technical change. For contractors on private projects across New York, including Long Island, it can mean faster access to money already earned and less need to borrow while waiting.
The amendment reflects a growing recognition that payment timing is not just a paperwork issue. It shapes which firms can compete, how projects are priced, and how financially stable the construction industry can be.