Retainage: What Contractors Need to Know and Helpful Strategies
June 04, 2024 —
Gerard J. Onorata - ConsensusDocsIntroduction
Most, if not all, construction contracts contain a provision for “retainage.” The origin and concept of retainage dates back to the railroad boom that embraced Great Britain in the 1840s. In its simplest terms, retainage is a mechanism by which an owner or general contractor withholds disbursement of funds from the payment of a requisition in order to secure future performance of a contract and/or to pay for repair of defectively performed work. Retainage typically ranges from five to ten percent, with the amount being reduced as the project progresses to substantial and final completion. One of the reasons for withholding retainage is to incentivize a contractor to complete its work in accordance with the contract terms and conditions. While this may be well-intentioned in concept, it all too often leads to abuse that impacts project cash flow and raises tension between the parties. This typically happens on projects that have delay issues, deficient drawings, and/or claims of defective work. When a project has “gone bad,” the withholding of retainage is one of the first things that an owner will latch onto in order to leverage its position against a contractor. In order for a contractor to put itself in the best position possible, the following negotiation techniques and protective measures should be kept in mind.
Know Your Applicable Statute
Every state except West Virginia has statutes in place that govern the payment of retainage on public projects. On federal projects, the amount of retainage withheld shall not exceed ten percent as set forth in the Federal Acquisition Regulations (“FAR”). The common thread running through these statutes is the payment of interest as a remedy when the retainage is not timely paid. Historically, most retainage statutes were applicable only to publicly funded projects. This has recently changed with a substantial number of state legislatures recognizing that the payment of retainage on private projects was a serious enough problem to warrant regulation. These include Alabama, Arizona, California, Colorado, Connecticut, Idaho, Illinois, Kansas, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, and Vermont. New York’s retainage laws relating to private projects were enacted only this past November.
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Gerard J. Onorata, Peckar & AbramsonMr. Onorata may be contacted at
gonorata@pecklaw.com
COVID-19 Could Impact Contractor Performance Bonds
March 30, 2020 —
Ben Williams & MG Surety - Construction ExecutiveAs COVID-19 continues to expand around the United States and the world, it may only be a matter of time before U.S. construction projects are affected by the virus. Performance bonds guarantee that a project will be completed by a contractor according to the contract. However, what if a contractor cannot complete a project on time due to widespread disease? What, if any, impact could the virus have on a contractor’s surety bond program?
Risk Factors
Several risks associated with the virus could trigger a performance bond claim.
1. Materials. The Chinese account for a large supply of construction materials, including steel, copper, cabinetry, etc. An inability to obtain these materials could significantly delay or stop a project all together. Even if a contractor is able to obtain them from other sources, it may be at a significantly higher cost than they put into the bid.
2. Labor. There is already a shortage of qualified labor in the construction industry. Additionally, construction already lends itself to the spreading of viruses; workers are often in close proximity, handling common materials, and they may not have an easily accessible place to wash their hands. Furthermore, even though many now have paid sick leave, there is often pressure not to use it. These things could magnify the labor shortage and make it difficult to complete projects on time.
3. Safety. Finally, the world is having a serious shortage of respirators. Because of widespread panic, many people have been purchasing N95 respirators—so much that the Surgeon General has asked people to stop buying them. It has created a shortage for people who really need them, like contractors. If contractors can’t get these safety masks, certain trades will either be unable to work, or risk continuing the project without masks, which would endanger workers and open them up to OSHA penalties.
Reprinted courtesy of
Ben Williams and MG Surety, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Mr. Williams may be contacted at
benw@mgsuretybonds.com
The Harmon Hotel Construction Defect Trial to Begin
October 29, 2014 —
Beverley BevenFlorez-CDJ STAFFThe trial involving the Las Vegas Harmon Hotel, which is currently being demolished piece by piece due to construction defects, is ready to begin six years after the defects were first discovered, reported the Las Vegas Review-Journal. It’s an unusual case for multiple reasons. The trial is expected to last a year, and the number of attorneys involved in the case required chairs to be removed from the galley to accommodate lawyer tables, which are wired with monitors and microphones. In addition, “two 80-inch monitors are being installed for the jury.”
The Las Vegas Review-Journal further reported that “each party will have its own technology team to display the more than 3 million digitally stored pieces of evidence.” Michael Doan, the court’s information technology director, told the Las Vegas Review-Journal that the “paper list of that evidence fills more than 100 document-storage boxes.”
The case “involves more than $400 million in damage claims.” Construction on the Harmon Tower was stopped after a “structural engineer hired by MGM Resorts determined the building was unsafe and could topple if an earthquake of a magnitude of 7.7 were to hit Las Vegas.”
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California Attempts to Tackle Housing Affordability Crisis
December 22, 2019 —
Garret Murai - California Construction Law BlogIt’s a bit too early yet for our 2020 Construction Law Update but here’s a preview of some of the new laws taking effect next year. Earlier this month, Governor Gavin Newsom signed a slate of 18 bills to boost housing production in an effort to tackle the state’s housing affordability crisis.
First, a bit of background.
California currently ranks 49th among the states in housing units per resident. Experts say that the state needs to double its current rate of housing production of 85,000 unit per year just to keep up with population growth and four times the current rate to reduce housing costs. Anecdotally, here in the San Francisco Bay Area, the median rent for a one-bedroom apartments in San Francisco is currently $3,690 per month or $44,280 per year. However, as of May 2018, according to the U.S. Bureau of Statistics, the annual mean wage of a teller is just $32,840, for farmworkers $34,700, and for teachers $48,250. And that’s before taxes. Let that sink in for a moment.
The result is one in five Californians live in poverty, the highest rate in the nation, when factoring in the cost of living.
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Garret Murai, Nomos LLPMr. Murai may be contacted at
gmurai@nomosllp.com
Construction Litigation Roundup: “Based on New Information …”
August 01, 2023 —
Daniel Lund III - LexologyBased on new information … your arbitration award is thrown out!
So said the United States Eleventh Circuit Court of Appeals, affirming a district court’s vacatur of the award based upon the award having been procured by fraud.
The lower court ruled as it did notwithstanding the fact that the action seeking to have the arbitration award vacated was filed and served beyond the three months allowed by the Federal Arbitration Act, 9 U.S.C. 12.
The party attacking arbitration award alleged that during the course of the arbitration hearing, a witness whose testimony was been handled remotely by videoconference was being inappropriately aided: the witness was being instructed remotely – by texting – by the corporate representative for his company, who was entitled to sit in on all portions of the arbitration hearing.
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Daniel Lund III, PhelpsMr. Lund may be contacted at
daniel.lund@phelps.com
Colorado House Bill 20-1290 – Restriction on the Use of Failure to Cooperate Defense in First-Party Claims
May 18, 2020 —
David M. McLain – Colorado Construction LitigationOn February 7th, Representative Garnett, with Senator Fenberg as the Senate sponsor, introduced HB 20-1290, concerning the ability of an insurer to use a failure-to-cooperate defense in an action in which the insured has made a claim for insurance coverage.
If the bill were to pass, in order to plead or prove a failure-to-cooperate defense in any action concerning first-party insurance benefits, the following conditions must be met:
- The carrier has submitted a written request for information the carrier seeks to the insured or the insured’s representative, by certified mail;
- The written request provides the insured 60 days to respond;
- The information sought would be discoverable in litigation;
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David McLain, Higgins, Hopkins, McLain & RoswellMr. McLain may be contacted at
mclain@hhmrlaw.com
Housing Starts Fall as U.S. Single-Family Projects Decline
February 18, 2015 —
Bloomberg News(Bloomberg) -- Builders broke ground on fewer U.S. residential construction projects in January as demand for single-family homes cooled from an almost seven-year high, signaling the rebound in housing remains uneven.
Housing starts declined 2 percent to a 1.07 million annual rate, following the prior month’s 1.09 million pace, a Commerce Department report showed Wednesday in Washington. The median forecast of 82 economists surveyed by Bloomberg was 1.07 million. Permits, a proxy for future construction, also fell.
Student debt, tight credit conditions and rising prices are probably preventing would-be first-time homebuyers from entering the market, which will damp construction. At the same time, a strengthening labor market and rising household formation may support building of rental units, underpinning residential real estate.
Nina Glinski may be contacted at nglinski@bloomberg.net; Shobhana Chandra may be contacted at schandra1@bloomberg.net
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Updated Covid-19 Standards In The Workplace
August 23, 2021 —
Mustafa Karim - Wilke FleuryWith California reopening, many Californians will be heading back to the workplace soon and are wondering if employers may require their employees to get vaccinated. According to the Fair Employment and Housing Act (“FEHA”), an employer may require employees to receive an FDA-approved vaccination against COVID-19 infection so long as the employer (a) does not discriminate against nor harass employees on the basis of a protected characteristic, (b) provides reasonable accommodations related to disability or sincerely-held religious beliefs, and (c) does not retaliate against anyone for engaging in protected activity.[1]
On June 15, 2021, California lifted its mask mandate across the state. The California Department of Public Health (“CDPH”) updated its guidance for the use of face coverings stating that masks are no longer required for fully vaccinated individuals.[2] However, masks are still required on public transit, indoors in k-12 schools, childcare, other youth settings, healthcare settings, long-term care facilities, correctional and detention facilities, and homeless shelters.[3]
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Wilke Fleury LLP
