The conclusion of a construction project presents a familiar impasse. The project owner doesn’t want to release final payment until it is sure there are no prospective mechanic’s liens out there. The contractor doesn’t want to waive its lien rights – which secure payment – until it has actually received payment. The solution is a “closing” of sorts. The parties exchange lien waivers for final payment. But sometimes the process breaks down.
In a recent Texas case, the contractor refused to perform the punch list work because the list allegedly contained many items outside the contractual scope of work. The project owner refused to release the ten percent of the contract price it retained. The contractor refused to submit lien waivers, which were a contractual requirement for release of retainage.
When the contractor sued the owner for the contract balance, questions arose. By refusing to submit waivers of lien, did the contractor forfeit the right to ten percent of the contract price? Or, was the contractor still entitled to the contract balance less the cost of the disputed items? The Texas Supreme Court ruled in favor of the contractor.
What is your opinion? When the project close-out process breaks down, should the contractor lose the right to any further payment? Isn’t the owner entitled to the protection of retainage when it has not received lien waivers and affidavits of payment to subcontractors? What practices and procedures can be implemented to expedite the process, even in the face of disputed items? I welcome your comments.
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