Prompt Payment Act Amendment Means School Districts and Local Governments Must Now Pay Interest for Late Payments to Vendors

Gov. Phil Murphy recently signed legislation into law that extends the New Jersey Prompt Payment Act to include local governments, school boards and independent authorities. The law, which already applies to state government agencies, aims to ensure the prompt payment of public contracts for the purchase of goods and services and provides for interest in the event that payment is not timely made. New Jersey Prompt Payment Act Extended to School Districts, Local Governments and Independent Authorities

The law, which, goes into effect on February 1, 2019, 120 days following enactment, requires payments made by independent authorities and local public contracting entities to be made within 60 calendar days from the date specified in the contract.  If there is no payment time specified in the contract, payment must be made 60 calendar days from the receipt of a properly executed invoice or the receipt of the goods of services, whichever is later.  For Boards of Education, the time frame is extended to 90 calendar days.

In the event payments are not made timely, interest must be paid from the period beginning on the day payment was due and ending on the date the check for payment is drawn.  The public entities may be excused from the interest payments as a result of circumstances beyond their control such as strikes or natural disasters.

Gov. Murphy’s Conditional Veto

The New Jersey Legislature passed the legislation in June providing for very short payment time periods. However, Gov. Phil Murphy conditionally vetoed itrecognizing the need to balance the interests of vendors and taxpayers.  “While I understand from our vendors’ perspective their interest in further expediting invoice payments, I am sensitive to the additional burdens that shortening those payment deadlines may place on governmental entities.  And, of course, should a governmental entity fail to meet the statutory payment schedule, the fiscal burden of that failure falls not on the entity itself but must be borne by the taxpayers of this State.”

Final Amendments to NJ Prompt Payment Law

The New Jersey Legislature concurred with Gov. Murphy’s proposed changes to the bill, and he signed it into law on October 4, 2018.

To summarize, local governments and independent state authorities must pay interest on the amount due a business concern pursuant to a properly executed invoice, when required, if the required payment is not made on or before the required payment date. Unless otherwise provided for in the contract, the required payment date is 60 calendar days from the date specified in the contract. If no required payment date is specified in the contract, then the required payment is due 60 days calendar days from the receipt of a properly executed invoice, or 60 calendar days from the receipt of goods or services, whichever is later. Interest need not be paid unless goods and services are rendered. The above requirements apply to New Jersey school boards. However, the deadline payment is extended 90 calendar days.

Under the new prompt payment law, a penalty will consist of interest on the late payment, at a rate established by the State Treasurer, to be paid to the business concern for the period beginning on the day after the required payment date and ending on the date on which the check for payment is drawn. Interest may be paid by separate payment to a business concern, but it must be paid within 30 days of the late payment. A public entity may waive the interest payment for a delinquency due to circumstances beyond the entity’s control, including but not limited to strikes or natural disasters.

For more information about the new law or the legal issues involved, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group.

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