By Bruce Jervis
The retention of a percentage of each progress payment is customary in the construction industry. The purpose is to protect a project owner or prime contractor against incomplete or noncompliant work by a contractor or subcontractor. The retained funds are released upon successful completion of the project to the parties that performed the work.
Sometimes the retention system is abused. Withholding 10% of another party’s contract payments provides considerable leverage. This can be used for purposes unrelated to the completion of the work in compliance with the contract documents.
In a recent California case, a prime contractor acknowledged that a share of retained funds released by the project owner was owed to a subcontractor. When the sub asserted a claim against the prime for delay and disruption, however, the prime refused to pay the sub its retention. A court ruled there had been no good faith dispute regarding the retention itself. The prime could not withhold retained funds as leverage against the because of claims or disputes that did not relate to the sufficiency of completed work? Does the implicit threat of delayed release of retention discourage parties from asserting legitimate claims? Your comments are welcomed.