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Claims Against The Contract Retainage

Thursday, June 03, 2004 01:12 pm

Claims Against The Contract Retainage

Construction contracts usually authorize the withholding of a stipulated percentage of each progress payment the project owner makes to the contractor. These retained funds protect the owner against incomplete or defective work. Once that purpose has been served, the contractor is of course eager to receive the contract balance.

Retainage also protects the interests of other parties such as subcontractors, suppliers and sureties. Project owners may therefore find themselves subject to claims from those quarters, as well as the demands of the contractor. Sometimes there are competing claims to the retainage.

Contractor's Right to the Retainage

Once a contractor completes the punch list of remaining work items and achieves final completion, the contractor is usually entitled, under the terms of the contract, to the full balance of the retainage. The project owner is not allowed to unreasonably delay final acceptance in order to defer the release of the retainage. Contractors Incorporated v. Tri-County Metropolitan District of Oregon, 766 P.2d 389 (Or.App. 1988); CCM April 1989, p. 2.

If the contractor fails to achieve substantial completion and defaults on the contract, the project owner is entitled to keep all the retainage. Unlike a situation where there is substantial completion and the owner takes only a set-off to cover unfinished punch list items, i [...]

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