a practical guide to
Copyright © 2017 by the Construction Financial Management Association (CFMA). All rights reserved. This article first appeared in CFMA Building Profits (a member-only benefit) and is reprinted with permission.
BY SUSAN L. McGREEVY & CHRISTY M. MILLIKEN
A PRACTICAL GUIDE TO Understanding Retainage
Known as retainage, this concept provides the owner or upstream party the right to hold back money earned until a later time, when it is disbursed under specified conditions. This concept dates back at least to the 1840s, when the construction of a national railroad system in England was plagued by a high rate of contractor defaults. The railroads started holding 20% of the contract amount to cover extra costs. The idea quickly spread to the U.S., where it has been a fixture in construction for more than 175 years.1 This practice is not without regulation, and states limit how much can be held back and for how long. Depending on the state, retainage may be restricted to 5% or 10% of the total project value and may be released at different times, ranging from substantial completion to when the work is accepted. Retainage rates may also be adjusted or modified based on the owner’s level of confidence in the contractor’s work.
Imagine you only pay 90% of the price of a shirt, wear it a few times, and then pay the balance after you decide that you like it. Now, imagine that same clothing retailer telling the supplier that it will get its last 10% only after you are satisfied and pay the last 10%. This scenario is laughable – it is simply not how business is done. Yet, in the construction industry, this payment arrangement is the norm. CFMA Building Profits May/June 2017
How Does Retainage Work? Construction generally requires significant time and money. However, most contractors cannot wait until after the work is complete to be paid. So, contractors are generally paid incrementally throughout the project as work is successfully accomplished. This provides contractors with better cash flow. But by making such payments, owners risk not having enough money to complete the project. For an owner, retainage offers a type of insurance.
PRACTICAL GUIDE Und er sta nd ing Reta ina g e
Retainage also incentivizes contractors to complete their own work: Knowing that money they have already earned is waiting unpaid, contractors are more likely to finish small items themselves. Retainage has become a mechanism to balance the contractor’s need for advance payments with the owner’s interest to ensure final completion.
The Federal Acquisition Regulation (FAR) clause for fixedprice construction contracts specifically provides that if the contracting officer finds that satisfactory progress is achieved during any period for which a progress payment is to be made, then the contracting officer “shall authorize payment to be made in full.”4
However, retainage often has the unfortunate effect of turning contractors and subcontractors into project financiers. In practice, the owner’s agreement with the GC will provide for a set amount (e.g., 10%) to be held until the project achieves substantial or final completion.
If satisfactory progress has not been made, then the contracting officer may withhold a maximum of 10% of the payment, until satisfactory progress is achieved.5 The FAR provisions also note that retainage “should not be used as a substitute for good contract management and the contracting officer should not withhold funds without cause.”6
The GC will insert identical language into its subcontracts, and the subcontractors will, in turn, flow down the same terms to their own subcontractors. As a result, the lowesttier subcontractor must pay full price to its vendors and laborers (most of whom rarely sell goods subject to retainage) while receiving only 90% of its payments.
While these clauses (or corresponding agency supplements) may remove retainage from a contract between the federal government and a GC, this does not necessarily prevent the GC from requiring retainage in its private agreements with subcontractors.
Retainage can also disproportionately affect subcontractors that complete their work early in the project. For example, an excavating firm that performs work before other trades arrive onsite might find retainage held for months – or years – after it has finished. While contracts often give the owner the option to release retainage to early-completing subcontractors, it seldom happens.
How Do Federal & State Laws Affect Retainage?
While many states have addressed the subject, no federal law exists that prohibits such retention agreements between GCs and subcontractors or between subcontractors and their subcontractors. The GC may have to ask the procuring agency to hold retainage on a subcontractor even if that agency is not holding retainage on the GC.7 Specific federal programs, such as the Disadvantaged Business Enterprise (DBE) program for highway and transportation subcontractors, prohibit this practice to ensure prompt payment to subcontractors.8
Given these potentially negative effects of retainage on contractors, it is no surprise that the industry has lobbied for laws to govern the practice. Currently, West Virginia is the only state with no laws governing retainage, although many states only regulate retainage on public work and leave the parties to decide on private work.2
State Laws
Such laws generally fall into two categories: regulating how much can be held3 and for how long. The answers will vary for every type of owner and jobsite.
Here are some of the essential questions posed by retainage and how states have answered them:
Federal Laws For projects governed by federal law, retainage may not necessarily be held on a project, and practices will vary depending on the procuring agency’s regulations. The trend, however, is against holding retainage, particularly where the GC has provided surety bonds.
Most states’ public projects require retainage, and the laws that regulate it vary. However, fewer states have the same laws for private projects. Although the number of states with legislation governing private work has grown, 20 states and Washington, D.C. have no law whatsoever.9
How Much Can Be Held? Typical public works statutes cap retainage at 5-10%, depending on the state. Some provide for a higher retainage level at the onset of the project; for example, Washington, D.C. requires 10% until the project is 50% complete, at which time the owner may reduce or even eliminate retainage on subsequent payments.10 May/June 2017 CFMA Building Profits
If a project is bonded, then the owner has even fewer reasons to withhold funds; some states allow for no retainage if surety bonds are supplied.
their work at various stages throughout the project. Currently, no statutes specifically address these issues.
Other states may start at a low level (e.g., 5%) and allow it to be raised if the contractor falls behind schedule or shows poor workmanship.11 However, this might cause more harm than good: While the owner may protect its cash, restricting cash flow to the point where the struggling contractor needs it most can slow a job significantly.
In states that specifically treat the retainage as a “trust fund,”17 the owner or contractor is a “fiduciary” holding funds for the benefit of others.18
While adjustable retainage statutes aim to tailor the retainage percentage to a particular job’s circumstances, they can also create an administrative nightmare for contractors that manage subcontractors, with various trades starting and completing work on entirely different timelines. Although a contract may provide that retainage is stopped at 50% completion of the total project, some subcontractors will already be more than 50% complete and others will be far less than that. Should subcontractors that start later have less retainage, or even no retainage held on them? Perhaps most significantly, how does an owner/GC account for which party’s retainage it is currently holding, and the timing for release of funds? How Long Can Funds Be Held? Not surprisingly, this also varies tremendously. Some states’ laws say it is released at “final completion” of the work; others say “substantial completion,”12 “completion,” “completion and acceptance,”13 “acceptance,”14 or when and if the work is “satisfactory.”15 And, unless specifically agreed to the contrary, retainage may not be held back to cover a warranty or correction period. The warranty is an obligation that arises after the work is accepted by the owner. Other than under the coverage of a performance bond, it is generally an unsecured obligation.
Can Retainage Be Treated as a Trust Fund?
The party holding the funds may have to keep records that would allow them to prove specifically which contractor’s or subcontractor’s money was being held, where it was being held, and how much interest is accruing. This information could become crucial if the party holding the funds goes into bankruptcy or its assets are seized by a creditor. To be effective, the fiduciary may be obligated to keep the funds segregated in a trust account – i.e., not reflected on its books or commingled with its own funds. Tracking this information requires extensive time and effort. Are there Alternatives to Retainage? Many states’ laws regarding public works also allow a contractor or subcontractor to post “alternative collateral” instead of having retainage withheld. Some states allow a contractor to avoid retainage by posting “acceptable security” in lieu of a bond.19 The rules vary from state to state, but the security generally must be backed by the U.S. government, such as a Treasury bill or a certificate of deposit (CD). This arrangement allows the contractor to earn interest on the security while maintaining cash flow. States that allow a bond in lieu of retainage may also require that the contractor accept similar bonds from any subcontractors or suppliers from which the contractor has retained funds.20
Issues Not Addressed
by
Law
Does a Contractor Receive Interest on Retainage?
Retainage on Stored Materials
Many states require that retainage be held in interestbearing accounts so that (theoretically, if not stated as such in the statute) the interest would flow down to the parties whose money is being held.16
It’s often in the owner’s interest to authorize a contractor or subcontractor to purchase materials or equipment in advance. Since billing on a percentage-of-completion of installed work will not justify such advance payment, it is common for the owner to pay for these items directly, get a bill of sale, and take ownership.
This can cause many issues regarding how the interest of each separate subcontractor is identified, released, and paid to the subcontractor, with new interest then to accrue to the next subcontractor, in a system where subcontractors complete
CFMA Building Profits May/June 2017
In this case, there is not much justification for retainage on these items. However, standard billing forms don’t address it,
PRACTICAL GUIDE Und er sta nd ing Reta ina g e
so it’s possible for the owner to take title to goods but only be paid 90% or 95% of their cost.
the lines are drawn also helps the contractor know where it can negotiate favorable alternatives. n
Retainage After Partial Occupancy
Endnotes
Most construction contracts allow an owner to take partial occupancy of work. One of the items included in a standard form of contract (e.g., the standard American Institute of Architects contracts) is “release of retainage” for such accepted work.21 However, this requires the parties to agree on the value of this occupied work to the contractor and various subcontractors, which is not always easy to do. As a result, it is often overlooked.
Retainage & Lien Waivers Many lien waiver forms ask the waiving party to acknowledge that payment has been received for all work through a certain date (although this isn’t generally possible if the form is mandated by state law). If retainage is being held, then such a statement can’t be truthfully made; this wording could eventually lead to payment delays. Forms that limit lien waivers to “payments received” avoid this problem.
Suppliers that Refuse Retainage
1. Bausman, Dennis C. Retainage Practice In The Construction Industry. Foundation of the American Subcontractors Association, Inc. Nov. 2004. 2. Kegler, Brown, Hill & Ritter. Retainage Laws In the Fifty States 2017. Foundation of the American Subcontractors Association, Inc. 2017. www. keglerbrown.com/content/uploads/2017/02/ASA-Retainage-Law-2017. pdf. A number of charts and summarize state retainage laws. CFMs are cautioned that all such charts and summaries are inherently incomplete and information gleaned from such sources should be confirmed independently and discussed with your legal counsel. 3. When referring to amounts held, it is important to also understand that retainage does not refer to a funds held by an owner for cause, such as where the owner withholds payment due to alleged failures of the contractor to perform or correct its work. 4. FAR 52.232-5(e). 5. FAR 52.232-5(e). 6. FAR 32.103. 7. 31 U.S.C. § 3905(d)(1); FAR 52.232-27(d)(1). 8. 49 C.F.R. § 26.29 (describing required prompt payment mechanisms for DBEs). 9. Griffin, Deborah. 50-State Survey of State Retainage Statutes for Private Construction. January 2012. www.hklaw.com/files/Uploads/Documents/ Alerts/Construction/01-20-12.pdf.
GCs withhold retainage from their subcontractors, and subcontractors withhold retainage from their subcontractors.
10. D.C. Code § 2-203.01.
But in almost every project, a vendor or supplier usually refuses to allow retainage to be held, which forces the party that hired that vendor or supplier to advance more money downstream than is being paid by the upstream customer.
12. Me. Rev. Stat. Ann. Title 5, § 1746; Mass. Gen. Laws c. 30 §§ 39F, G and K. Michigan calls for release of retainage when the work is 94% or more complete. Mich. Comp. Laws § 125.1563. This is the language used in A201-2007, General Conditions of the Contract for Construction, § 9.8.5.
Alternative solutions are to:
14. Vt. Stat. Ann. title 9, § 4005. Utah Code Ann. § 13-8-5(4).
1) Ask the owner to purchase those items directly, (i.e., the contractor is only paid for the labor); or
15. Minn. Stat. § 15.72.
2) Have a carve-out for those vendors/subcontractors so that they are still part of the contractor’s scope, but retainage is not held on them.
17. See, for example, The Texas Construction Trust Fund Act, Texas Property Code Title 10, § 162.001.
Conclusion Retainage is a system that tries to balance the owner’s interests in a completed project with the contractor’s need for progress payments. The best thing a contractor can do is to be aware of the legal framework within which the owner is operating – what can be held, until when, and available remedies. Knowing where
11. Ariz. Rev. Stat. § 34-609; Md. Code Ann. State Fin. & Proc. § 17-110.
13. Ala. Code § 39-2-12; Ariz. Rev. Stat. § 34-221(C).
16. Utah Code Ann. § 13-8-5(4).
18. To avoid being considered a “fiduciary” – which creates a higher duty to the party whose money is being held – some contract forms clearly state that just because retainage is being held, it is not intended that the party holding it is a “fiduciary.” See AIA A201-2007, General Conditions of the Contract for Construction, § 9.6.7. 19. Ala. Code § 39-2-12(e). (public only); Haw. Rev. Stat. § 103-32.2. (public only); Mo. Rev. Stat. § 436.306 (private only). 20. See, for example, Wash. Rev. Code § 60.28.011(6). 21. See AIA A201-2007, General Conditions of the Contract for Construction, § 9.9.1.
May/June 2017 CFMA Building Profits
SUSAN L. McGREEVY is Partner at Stinson Leonard Street, LLP in Kansas City, MO, where she advises construction companies, sureties, design professionals, and owners in their day-to-day business ventures.
CHRISTY M. MILLIKEN is an Attorney at Stinson Leonard Street in its Washington, D.C. location. She has extensive experience in government contracts, commercial law, construction law, and civil litigation.
She specializes in drafting and negotiating all types of agreements, dispute resolution, strategic and succession planning, and representing sureties in bond claims and litigation.
Christy represents owners, GCs, subcontractors, and suppliers in commercial and construction arbitration proceedings, administrative actions, and in state and federal courts at both the trial and appellate levels.
Previously, Susan was a former trial attorney for the U.S. Department of Justice. She has presented at numerous industry events, including those of CFMA, AGC, the International Municipal Lawyers Association, Kansas Contractors Association, American Society of Professional Estimators, and NAWIC. A longtime author for CFMA Building Profits, Susan has been a member of CFMA’s Kansas City Chapter for more than 10 years.
In addition to litigating disputes, Christy also advises clients on the day-to-day matters that arise in contract agreements, such as delays, performance issues, defects, change orders, terminations, and more.
Phone: 816-691-3480 E-Mail: [email protected] Website: www.stinson.com
CFMA Building Profits May/June 2017
Phone: 202-728-3029 E-Mail: [email protected] Website: www.stinson.com
BY SUSAN L. McGREEVY & CHRISTY M. MILLIKEN
A PRACTICAL GUIDE TO Understanding Retainage
Known as retainage, this concept provides the owner or upstream party the right to hold back money earned until a later time, when it is disbursed under specified conditions. This concept dates back at least to the 1840s, when the construction of a national railroad system in England was plagued by a high rate of contractor defaults. The railroads started holding 20% of the contract amount to cover extra costs. The idea quickly spread to the U.S., where it has been a fixture in construction for more than 175 years.1 This practice is not without regulation, and states limit how much can be held back and for how long. Depending on the state, retainage may be restricted to 5% or 10% of the total project value and may be released at different times, ranging from substantial completion to when the work is accepted. Retainage rates may also be adjusted or modified based on the owner’s level of confidence in the contractor’s work.
Imagine you only pay 90% of the price of a shirt, wear it a few times, and then pay the balance after you decide that you like it. Now, imagine that same clothing retailer telling the supplier that it will get its last 10% only after you are satisfied and pay the last 10%. This scenario is laughable – it is simply not how business is done. Yet, in the construction industry, this payment arrangement is the norm. CFMA Building Profits May/June 2017
How Does Retainage Work? Construction generally requires significant time and money. However, most contractors cannot wait until after the work is complete to be paid. So, contractors are generally paid incrementally throughout the project as work is successfully accomplished. This provides contractors with better cash flow. But by making such payments, owners risk not having enough money to complete the project. For an owner, retainage offers a type of insurance.
PRACTICAL GUIDE Und er sta nd ing Reta ina g e
Retainage also incentivizes contractors to complete their own work: Knowing that money they have already earned is waiting unpaid, contractors are more likely to finish small items themselves. Retainage has become a mechanism to balance the contractor’s need for advance payments with the owner’s interest to ensure final completion.
The Federal Acquisition Regulation (FAR) clause for fixedprice construction contracts specifically provides that if the contracting officer finds that satisfactory progress is achieved during any period for which a progress payment is to be made, then the contracting officer “shall authorize payment to be made in full.”4
However, retainage often has the unfortunate effect of turning contractors and subcontractors into project financiers. In practice, the owner’s agreement with the GC will provide for a set amount (e.g., 10%) to be held until the project achieves substantial or final completion.
If satisfactory progress has not been made, then the contracting officer may withhold a maximum of 10% of the payment, until satisfactory progress is achieved.5 The FAR provisions also note that retainage “should not be used as a substitute for good contract management and the contracting officer should not withhold funds without cause.”6
The GC will insert identical language into its subcontracts, and the subcontractors will, in turn, flow down the same terms to their own subcontractors. As a result, the lowesttier subcontractor must pay full price to its vendors and laborers (most of whom rarely sell goods subject to retainage) while receiving only 90% of its payments.
While these clauses (or corresponding agency supplements) may remove retainage from a contract between the federal government and a GC, this does not necessarily prevent the GC from requiring retainage in its private agreements with subcontractors.
Retainage can also disproportionately affect subcontractors that complete their work early in the project. For example, an excavating firm that performs work before other trades arrive onsite might find retainage held for months – or years – after it has finished. While contracts often give the owner the option to release retainage to early-completing subcontractors, it seldom happens.
How Do Federal & State Laws Affect Retainage?
While many states have addressed the subject, no federal law exists that prohibits such retention agreements between GCs and subcontractors or between subcontractors and their subcontractors. The GC may have to ask the procuring agency to hold retainage on a subcontractor even if that agency is not holding retainage on the GC.7 Specific federal programs, such as the Disadvantaged Business Enterprise (DBE) program for highway and transportation subcontractors, prohibit this practice to ensure prompt payment to subcontractors.8
Given these potentially negative effects of retainage on contractors, it is no surprise that the industry has lobbied for laws to govern the practice. Currently, West Virginia is the only state with no laws governing retainage, although many states only regulate retainage on public work and leave the parties to decide on private work.2
State Laws
Such laws generally fall into two categories: regulating how much can be held3 and for how long. The answers will vary for every type of owner and jobsite.
Here are some of the essential questions posed by retainage and how states have answered them:
Federal Laws For projects governed by federal law, retainage may not necessarily be held on a project, and practices will vary depending on the procuring agency’s regulations. The trend, however, is against holding retainage, particularly where the GC has provided surety bonds.
Most states’ public projects require retainage, and the laws that regulate it vary. However, fewer states have the same laws for private projects. Although the number of states with legislation governing private work has grown, 20 states and Washington, D.C. have no law whatsoever.9
How Much Can Be Held? Typical public works statutes cap retainage at 5-10%, depending on the state. Some provide for a higher retainage level at the onset of the project; for example, Washington, D.C. requires 10% until the project is 50% complete, at which time the owner may reduce or even eliminate retainage on subsequent payments.10 May/June 2017 CFMA Building Profits
If a project is bonded, then the owner has even fewer reasons to withhold funds; some states allow for no retainage if surety bonds are supplied.
their work at various stages throughout the project. Currently, no statutes specifically address these issues.
Other states may start at a low level (e.g., 5%) and allow it to be raised if the contractor falls behind schedule or shows poor workmanship.11 However, this might cause more harm than good: While the owner may protect its cash, restricting cash flow to the point where the struggling contractor needs it most can slow a job significantly.
In states that specifically treat the retainage as a “trust fund,”17 the owner or contractor is a “fiduciary” holding funds for the benefit of others.18
While adjustable retainage statutes aim to tailor the retainage percentage to a particular job’s circumstances, they can also create an administrative nightmare for contractors that manage subcontractors, with various trades starting and completing work on entirely different timelines. Although a contract may provide that retainage is stopped at 50% completion of the total project, some subcontractors will already be more than 50% complete and others will be far less than that. Should subcontractors that start later have less retainage, or even no retainage held on them? Perhaps most significantly, how does an owner/GC account for which party’s retainage it is currently holding, and the timing for release of funds? How Long Can Funds Be Held? Not surprisingly, this also varies tremendously. Some states’ laws say it is released at “final completion” of the work; others say “substantial completion,”12 “completion,” “completion and acceptance,”13 “acceptance,”14 or when and if the work is “satisfactory.”15 And, unless specifically agreed to the contrary, retainage may not be held back to cover a warranty or correction period. The warranty is an obligation that arises after the work is accepted by the owner. Other than under the coverage of a performance bond, it is generally an unsecured obligation.
Can Retainage Be Treated as a Trust Fund?
The party holding the funds may have to keep records that would allow them to prove specifically which contractor’s or subcontractor’s money was being held, where it was being held, and how much interest is accruing. This information could become crucial if the party holding the funds goes into bankruptcy or its assets are seized by a creditor. To be effective, the fiduciary may be obligated to keep the funds segregated in a trust account – i.e., not reflected on its books or commingled with its own funds. Tracking this information requires extensive time and effort. Are there Alternatives to Retainage? Many states’ laws regarding public works also allow a contractor or subcontractor to post “alternative collateral” instead of having retainage withheld. Some states allow a contractor to avoid retainage by posting “acceptable security” in lieu of a bond.19 The rules vary from state to state, but the security generally must be backed by the U.S. government, such as a Treasury bill or a certificate of deposit (CD). This arrangement allows the contractor to earn interest on the security while maintaining cash flow. States that allow a bond in lieu of retainage may also require that the contractor accept similar bonds from any subcontractors or suppliers from which the contractor has retained funds.20
Issues Not Addressed
by
Law
Does a Contractor Receive Interest on Retainage?
Retainage on Stored Materials
Many states require that retainage be held in interestbearing accounts so that (theoretically, if not stated as such in the statute) the interest would flow down to the parties whose money is being held.16
It’s often in the owner’s interest to authorize a contractor or subcontractor to purchase materials or equipment in advance. Since billing on a percentage-of-completion of installed work will not justify such advance payment, it is common for the owner to pay for these items directly, get a bill of sale, and take ownership.
This can cause many issues regarding how the interest of each separate subcontractor is identified, released, and paid to the subcontractor, with new interest then to accrue to the next subcontractor, in a system where subcontractors complete
CFMA Building Profits May/June 2017
In this case, there is not much justification for retainage on these items. However, standard billing forms don’t address it,
PRACTICAL GUIDE Und er sta nd ing Reta ina g e
so it’s possible for the owner to take title to goods but only be paid 90% or 95% of their cost.
the lines are drawn also helps the contractor know where it can negotiate favorable alternatives. n
Retainage After Partial Occupancy
Endnotes
Most construction contracts allow an owner to take partial occupancy of work. One of the items included in a standard form of contract (e.g., the standard American Institute of Architects contracts) is “release of retainage” for such accepted work.21 However, this requires the parties to agree on the value of this occupied work to the contractor and various subcontractors, which is not always easy to do. As a result, it is often overlooked.
Retainage & Lien Waivers Many lien waiver forms ask the waiving party to acknowledge that payment has been received for all work through a certain date (although this isn’t generally possible if the form is mandated by state law). If retainage is being held, then such a statement can’t be truthfully made; this wording could eventually lead to payment delays. Forms that limit lien waivers to “payments received” avoid this problem.
Suppliers that Refuse Retainage
1. Bausman, Dennis C. Retainage Practice In The Construction Industry. Foundation of the American Subcontractors Association, Inc. Nov. 2004. 2. Kegler, Brown, Hill & Ritter. Retainage Laws In the Fifty States 2017. Foundation of the American Subcontractors Association, Inc. 2017. www. keglerbrown.com/content/uploads/2017/02/ASA-Retainage-Law-2017. pdf. A number of charts and summarize state retainage laws. CFMs are cautioned that all such charts and summaries are inherently incomplete and information gleaned from such sources should be confirmed independently and discussed with your legal counsel. 3. When referring to amounts held, it is important to also understand that retainage does not refer to a funds held by an owner for cause, such as where the owner withholds payment due to alleged failures of the contractor to perform or correct its work. 4. FAR 52.232-5(e). 5. FAR 52.232-5(e). 6. FAR 32.103. 7. 31 U.S.C. § 3905(d)(1); FAR 52.232-27(d)(1). 8. 49 C.F.R. § 26.29 (describing required prompt payment mechanisms for DBEs). 9. Griffin, Deborah. 50-State Survey of State Retainage Statutes for Private Construction. January 2012. www.hklaw.com/files/Uploads/Documents/ Alerts/Construction/01-20-12.pdf.
GCs withhold retainage from their subcontractors, and subcontractors withhold retainage from their subcontractors.
10. D.C. Code § 2-203.01.
But in almost every project, a vendor or supplier usually refuses to allow retainage to be held, which forces the party that hired that vendor or supplier to advance more money downstream than is being paid by the upstream customer.
12. Me. Rev. Stat. Ann. Title 5, § 1746; Mass. Gen. Laws c. 30 §§ 39F, G and K. Michigan calls for release of retainage when the work is 94% or more complete. Mich. Comp. Laws § 125.1563. This is the language used in A201-2007, General Conditions of the Contract for Construction, § 9.8.5.
Alternative solutions are to:
14. Vt. Stat. Ann. title 9, § 4005. Utah Code Ann. § 13-8-5(4).
1) Ask the owner to purchase those items directly, (i.e., the contractor is only paid for the labor); or
15. Minn. Stat. § 15.72.
2) Have a carve-out for those vendors/subcontractors so that they are still part of the contractor’s scope, but retainage is not held on them.
17. See, for example, The Texas Construction Trust Fund Act, Texas Property Code Title 10, § 162.001.
Conclusion Retainage is a system that tries to balance the owner’s interests in a completed project with the contractor’s need for progress payments. The best thing a contractor can do is to be aware of the legal framework within which the owner is operating – what can be held, until when, and available remedies. Knowing where
11. Ariz. Rev. Stat. § 34-609; Md. Code Ann. State Fin. & Proc. § 17-110.
13. Ala. Code § 39-2-12; Ariz. Rev. Stat. § 34-221(C).
16. Utah Code Ann. § 13-8-5(4).
18. To avoid being considered a “fiduciary” – which creates a higher duty to the party whose money is being held – some contract forms clearly state that just because retainage is being held, it is not intended that the party holding it is a “fiduciary.” See AIA A201-2007, General Conditions of the Contract for Construction, § 9.6.7. 19. Ala. Code § 39-2-12(e). (public only); Haw. Rev. Stat. § 103-32.2. (public only); Mo. Rev. Stat. § 436.306 (private only). 20. See, for example, Wash. Rev. Code § 60.28.011(6). 21. See AIA A201-2007, General Conditions of the Contract for Construction, § 9.9.1.
May/June 2017 CFMA Building Profits
SUSAN L. McGREEVY is Partner at Stinson Leonard Street, LLP in Kansas City, MO, where she advises construction companies, sureties, design professionals, and owners in their day-to-day business ventures.
CHRISTY M. MILLIKEN is an Attorney at Stinson Leonard Street in its Washington, D.C. location. She has extensive experience in government contracts, commercial law, construction law, and civil litigation.
She specializes in drafting and negotiating all types of agreements, dispute resolution, strategic and succession planning, and representing sureties in bond claims and litigation.
Christy represents owners, GCs, subcontractors, and suppliers in commercial and construction arbitration proceedings, administrative actions, and in state and federal courts at both the trial and appellate levels.
Previously, Susan was a former trial attorney for the U.S. Department of Justice. She has presented at numerous industry events, including those of CFMA, AGC, the International Municipal Lawyers Association, Kansas Contractors Association, American Society of Professional Estimators, and NAWIC. A longtime author for CFMA Building Profits, Susan has been a member of CFMA’s Kansas City Chapter for more than 10 years.
In addition to litigating disputes, Christy also advises clients on the day-to-day matters that arise in contract agreements, such as delays, performance issues, defects, change orders, terminations, and more.
Phone: 816-691-3480 E-Mail: [email protected] Website: www.stinson.com
CFMA Building Profits May/June 2017
Phone: 202-728-3029 E-Mail: [email protected] Website: www.stinson.com
