VIEWPOINTS: Essential Contract Considerations for Construction Projects in 2026

The following is a Viewpoint written by Jason Kosek, a shareholder in Anderson Kill P.C.'s New York headquarters, and Keith A. Lazere, a shareholder in Anderson Kill’s New York office and deputy general counsel of the firm

It’s 2026. You’ve spent all of 2025 bidding on a project, mapping out schedules, reviewing specification and drawing changes, and now you’re ready to draft, negotiate, and execute your contract. But contracts aren’t static documents, they’re living instruments that demand routine modification and updates to reflect industry changes, new legislation, and amendments to existing laws.

Below we discuss the top three laws and issues you must consider when drafting construction contracts in 2026 (two of them new, the third under-recognized). 

1. The AVOID Act

The AVOID Act fundamentally restructures defense strategy by forcing immediate identification of third-party defendants. Effective April 18, 2026 (120 days from the signing of the AVOID Act), newly amended CPLR Section 1007 establishes rigid deadlines for filing third-party actions, altering procedural practice in New York civil litigation. This means attorneys can no longer adopt a wait-and-see approach to impleader. Instead, they must conduct comprehensive indemnification analysis, insurance investigation, and liability assessment within days of filing an answer. The safest course may be blanket impleader of all potentially liable parties. In labor law litigation, this could mean naming every subcontractor who set foot on the project site, regardless of their apparent connection to the alleged injury. (See also Jason Kosek’s analysis in the New York Law Journal.)

When drafting contracts to account AVOID Act changes, owners should ensure that contract require the General Contractor to maintain and regularly update a comprehensive project schedule identifying all entities and vendors performing work on the project. This visibility is critical for compliance and risk management under the AVOID Act.

Every subcontract issued on the project should include provisions including the following.

Mandatory Owner Indemnification: Every contract must name the Owner as an Indemnitee with clear, enforceable indemnification language.

Immediate Contract Delivery: Require all subcontracts and lower-tier agreements to be provided to the Owner immediately upon execution.

Centralized Database: Maintain a comprehensive database tracking all contracting parties and their specific indemnification obligations.

This proactive approach dramatically reduces investigation time given the AVOID Act’s tight deadlines for third-party practice. With indemnification agreements readily accessible, you can quickly draft third-party complaints incorporating the relevant contractual language—producing stronger pleadings that withstand dismissal motions and preserve your recovery rights.

2. Amendment to General Business Law § 757(Prompt Payment Act.)

On December 19, 2025, New York gutted any remaining wiggle room in its retainage laws. The Legislature amended General Business Law § 757, the Prompt Payment Act, and the message is crystal clear: any contract provision requiring retainage exceeding 5% of the total contract sum is void. Period.

This means owners cannot withhold more than 5% from prime contractors, and prime contractors cannot withhold more than 5% from subcontractors. No exceptions. No creative drafting. No negotiating around it. Any retainage provision exceeding 5% in your private construction contracts executed after December 19, 2025 is unenforceable. Courts won’t blue-pencil it down to 5%, they’ll void it entirely, potentially leaving you without any retainage protection if the provision isn’t severable from the rest of your payment terms.

To adjust to the Prompt Payment Act, owners should ensure that their own contracts and those of  all subcontractors include a 5% limit on retainage. It’s also important to structure retainage schedules strategically. Hold more funds early when risk is highest, release faster as the project progresses, but always keep your eye on the total contract sum calculation. Any provision that permits aggregate retainage exceeding 5% is unenforceable, and courts won’t rewrite your deal to save it. Get your retainage language compliant before your next contract gets signed.  Relatedly, draft invoicing provisions into contracts to help fend off account stated claims (i.e., a failure to object to invoicing within 90 days does not create an account stated).

3. Indemnification Language Under New York Law

New York public policy prohibits contractual indemnification for one’s own sole negligence. General Obligations Law § 5-322.1 voids any construction contract provision purporting to indemnify a party against liability arising from its own negligence. Courts will not enforce these provisions. They’re dead on arrival.

If you’re an owner, demand intermediate form indemnification language in your contracts. In case of shared negligence, this language requires the contractor to cover your share. Use trigger language like:

·         "even if caused in part by" the indemnitee’s negligence

·         "regardless of" the indemnitee’s fault

·         "whether or not" the indemnitee was negligent

This language survives § 5-322.1 because the indemnitor still bears some fault. You’re not indemnifying yourself for your sole negligence. The contractor pays for your partial negligence so long as it shares any responsibility for the loss.

Practice Pointers for Contractors: Insist on Limited Form Indemnification

If you’re a contractor, limit your indemnification obligation to losses caused solely by your own negligence. This prevents you from bankrolling someone else’s mistakes. Use restrictive language like:

·         "only to the extent caused by Contractor's negligence"

·         "limited to losses arising from Contractor's negligent acts or omissions"

·         "to the extent of Contractor's proportionate fault"

Strike any language requiring you to indemnify “even if caused in part by” the owner’s negligence. That’s intermediate form indemnification, and it puts you on the hook for 100% of the loss even when the owner bears primary responsibility.

To sum up these challenges: prepare in advance to avoid delay under the AVOID Act; prepare to live with limited retainage; and protect yourself in cases of shared negligence to the extent possible. Build your contracts before you start building—and may your projects go forward on schedule.

Jason Kosek is a shareholder in Anderson Kill P.C.'s New York headquarters. Jason focuses his practice on the construction industry and assists clients in a broad array of issues, including insurance coverage, regulatory, FCPA, labor law, negligence, nuisance, trespass, products liability and breach of contract, with a focus on construction and regulatory matters.  https://www.linkedin.com/in/jason-kosek-4a321737/

Keith A. Lazere is a shareholder in Anderson Kill’s New York office and deputy general counsel of the firm. Keith focuses his practice on Corporate and Commercial Litigation at the trial and appellate levels in state and federal court. He represents clients in sophisticated commercial and business litigations involving business torts, fraud, breach of contract, corporate and partnership disputes, employment disputes and debtor and creditor rights. https://www.linkedin.com/in/keith-a-lazere-71550642