If you are a general contractor or subcontractor, you should know the New Jersey Prompt Payment Act. In general, the purpose of this Act is to encourage prompt payment to contractors for the materials and services they provide on a project by imposing potential sanctions, including counsel fees, should payments which are currently due not be timely and properly tendered. One of the provisions of this Act contains a fee-shifting provision whereby the contractor may be entitled to an award of all counsel fees incurred in seeking the payment it is due from a general contractor or subcontractor.

A recent appellate division case discussed what would constitute reasonable counsel fees and costs which may be awarded to a party for bringing an action to recover the payment it is entitled to under the Prompt Payment Act. In this matter, the appellate division explained that the Prompt Payment Act requires an award of reasonable counsel fees and costs to the prevailing party in a suit filed under the Act. Further, the court ruled that the New Jersey Supreme Court did not require proportionality between the damages recovered in the action and the legal fees and costs awarded under the statute. As such, although the plaintiff’s legal fees and costs were in excess of the amount it recovered, it was nonetheless entitled to the payment of same. The court rationalized that the only reason the plaintiff incurred the legal fees and costs was due to the defendant’s improper refusal to pay the plaintiff in full for the work it had provided.

As such, it is evident that the Prompt Payment Act can be a strong negotiation tool in construction litigation, and moreover, can afford full relief to an injured contractor. Therefore, as a general contractor or subcontractor, full consideration of this Act and its fee-shifting provision must always be considered.