12/02/2019

Editor’s Notes

The partial withholding of funds from periodic progress payments is customary in construction contracts. The “retainage” is to be released upon completion of the work as final payment under the contract. This leads to disputes regarding the refusal to release retainage. Two of the cases in this issue involve such questions.

 

A contractor issued a final payment check to a subcontractor in the full amount of the retained funds. The check was accompanied, however, by a waiver and release form, which would arguably extinguish an unresolved delay claim the sub had asserted against the contractor. The Vermont Supreme Court ruled that the sub had been justified in refusing to endorse the check. This had not been a proper timely payment of the retainage.

 

Another contractor allowed a subcontractor to cease work, bringing in a replacement to complete the work. The subcontractor had not been terminated for default and argued it was entitled to the retainage from work it had performed at the site. Despite some awkward wording in the subcontract retainage clause, a California court ruled that the subcontractor’s argument was contrary to the intention and purpose of retainage.

 

The third case in this issue addresses liquidated damages for late completion. A Tennessee court ruled that a contractor could not assess liquidated damages against a subcontractor when the contractor had also contributed to the late completion of the project.

 
 

 

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