The New Joint Employer Rule is Vacated
Articles on Construction Litigation & Dispute Resolution by Division 1 of the ABA Forum on Construction Law
The New Joint Employer Rule is Vacated
A similar Spring is also coming
in the Forum. The upcoming Annual Meeting marks the changing of the guard for
the Forum Chair. John Cook will mark the end of his term and Keith Bergeron
will be sworn in and take the reins. Starting in the Fall, Keith’s meetings will
focus on the trilogy that exists in construction projects: the designer, the contractor and the owner. The
Fall meeting also marks the beginning of Division 1’s three-part Practicum
series on discovery in construction cases. The Fall meeting will take place on
October 23-25, 2024 in Pittsburgh and focus on the designer’s role in
construction projects. Division 1 will start the Practicum discovery series
with a deep dive into document discovery and best practices on managing the
voluminous documents involved in most construction cases.
Later this month, I will host the first of what I hope will be a regular schedule of “Get to Know D1” calls. The purpose of these calls is to give those who are new to Division 1, or those who want to get more acquainted with D1, a tutorial on all the activities happening within D1 and more information to help them build relationships and get involved.
The first “Get to Know D1” call will be on Thursday, March 28 at 1:00 om EST via Zoom. The access credentials for this call are below:
https://phelps.zoom.us/j/3094394839?pwd=dXlfqOQvZgsrmbEwdijtUwwuQ1ECdh.1&omn=83350878778
Meeting ID: 309 439 4839
Password: Forum
Finally, in addition to our programming at the national meetings, be sure to check out the fantastic material regularly posted to the Dispute Resolver Blog and our upcoming Toolbox Talks:
This post takes a look at the enforceability of contract provisions providing for liquidated delay damages after substantial completion. Typically, the assessment of liquidated delay damages ends at substantial completion of a project. However, various standard form contracts, including some of the ConsensusDocs and EJCDC contracts, contain elections allowing for the parties to agree on the use of liquidated damages for failing to achieve substantial completion, final completion, or project milestones. The standard language in the AIA A201 leaves it up to the parties to define the circumstances under which liquidated damages will be awarded.
Courts are split on the enforceability of provisions that seek to assess liquidated damages beyond substantial completions. Courts in some jurisdictions will not impose liquidated damages after the date of substantial completion on the ground that liquidated damages would otherwise become a penalty if assessed after the owner has put the project to its intended use. Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 610 A.2d 364 (1992). When the terms are clear, other jurisdictions will enforce contract terms providing for liquidated damages until final completion, even if the owner has taken beneficial use of the facility. Carrothers Const. Co. v. City of S. Hutchinson, 288 Kan. 743, 207 P.3d 231 (2009).
In Power Constructors, Inc. v. City of Ketchikan, 923 F.2d 863 (9th Cir. 1991), a public owner sought to recover liquidated delay damages beyond substantial completion pursuant to a contract provision that provided for liquidated damages for “each and every day that the work and any specified portions thereof are not completed . . .” The district court held that the entire provision was an invalid penalty because it applied after substantial completion to minor and inconsequential breaches.
The Ninth Circuit reversed the district court and held that under Alaska law, the court should have upheld that portion of the liquidated damages provision that was not a penalty and that the public owner was entitled to recover liquidated damages until substantial completion.
However, other courts have allowed liquidated damages beyond substantial completion where the contract specifically provides for such. In Reliance Ins. Co. v. Utah Dept. of Transp., 858 P.2d 1363 (Utah 1993), the Utah Supreme Court upheld a provision in a state highway contract that provided for liquidated damages of $600 per day when “any work shall remain” on the project.
The Reliance Ins. court rejected the surety’s argument that liquidated damages should end at substantial completion. The court noted that the contract between the parties does not provide for liquidated damages to end at substantial completion, but rather, final completion as determined by the UDOT engineer. The court went on to hold that the provision was unambiguous and that the parties could have used substantial completion as the date for ending the assessment of liquidated damages if they so intended. The Reliance Ins. court noted, however that there could be a case when the work remaining on the project was so trivial that assessing the entire liquidated damages amount could result in gross unfairness – but that was not so in the case before the court.
Similarly, in Ledbetter Bros. v. N. Carolina Dep't of Transp., 68 N.C. App. 97, 314 S.E.2d 761 (1984), the Court of Appeals of North Carolina enforced a provision in a public highway contract which assessed liquidated damages until final completion of the work.
The liquidated damages provision was contained in the standard specifications issued by the state highway commission and incorporated in the contract by reference. The provision provided in pertinent part: “a sum of money in the amount stipulated in the contract will be charged against the Contractor for each calendar day that the work remains uncompleted after the expiration of the completion date . . .”
The court noted that liquidated damages provisions have long been held to be valid and an appropriate means of inducing timely performance. “It would frustrate this policy, and increase the likelihood of inconvenience and danger to the public to allow disputes over substantial performance to affect such provisions.”
California courts have also upheld contract provisions providing for liquidated damages on a school construction project until “final completion” rather than “substantial completion.” Rejecting the contractor’s argument that liquidated damages could not be awarded after substantial completion, the court noted that because the parties had contracted for a complete building, not a substantially complete one, liquidated damages until final completion were appropriate. Vrgora v. Los Angeles Unified Sch. Dist., 152 Cal. App. 3d 1178, 1187 (Ct. App. 1984).
Based on the case law, it appears that many jurisdictions will enforce contract provisions providing for liquidated damages beyond substantial completion. Provisions as such should be unambiguous in their terms and – even considering that some jurisdictions will not evaluate the gravity of the liquidated penalty versus actual delay damages – in most instances liquidated damages should be predicated upon a reasonable estimate of the damages to the owner from the failure to achieve final completion.
Author and Editor Stu Richeson is an attorney in the litigation section of Phelps' New Orleans office, primarily focusing on commercial litigation with an emphasis on construction matters, intellectual property issues and insurance.
In the February 29, 2024 edition of Division 1’s Toolbox Talk Series, Chad Garcia provided information on the role of a CPA in construction litigation. Garcia discussed the various type of claims and situations in which Certified Public Accountants (“CPAs”) can provide value to parties involved in construction disputes, as well as other contexts in which CPAs are often used on construction projects.
In
Garcia’s experience, CPAs frequently work to quantify damages on errors and
omissions claims, construction defect claims, and delay claims. CPAs also perform analysis relating to cost
overrun disputes, change order disputes, claims for lost profits, and claims
involving liens. While the precise
analysis differs in each of the above contexts, CPAs generally analyze
financial records and other relevant project documents (such as change orders,
contracts, etc.) to make sure all amounts claimed are reasonable and
accurate.
As
one example, in JH Kelly, LLC v. AECOM Technical Services, Inc., 605 F. Supp.
3d 1295 (N.D. Cal., June 2, 2022), a CPA (who is also a Certified Management
Accountant and Certified in Financial Forensics) offered expert testimony to calculate
the Subcontract balance, to determine where cost overruns occurred, and to
compare design cost overruns to construction cost overruns. In response to a Daubert challenge regarding
the analysis of cost overruns, the court ruled that the expert’s opinion “is
sufficiently based on his analysis of the billings at issue and his experience
in accounting, auditing, and analyzing costs related to construction projects to
be admissible under Rule 702.”
Depending
on the dispute and the available records, a CPA’s methodology will vary. Garcia detailed how they may look at invoices,
payments, and purchase orders to build a damage valuation based on actual
costs. Other options include total cost,
modified total costs, and measured mile approaches. Those methodologies were discussed in greater
depth in the October
26, 2023 Toolbox Talk.
Other
areas that Garcia covered include the potential, at least in smaller claims, to
engage a CPA to prove costs and rely on project personnel for testimony to
support the root causes, and various non-dispute contexts in which a CPA can
support a construction project. Those
include (1) accounting and finance process improvements based on an
evaluation of a company’s internal controls; (2) tax planning and compliance;
and (3) advice for tracking ongoing claims by using a separate cost code or
separate account in the job costing system to isolate costs related to the
damage event or delay.
Thank you to Garcia for detailing the various ways a CPA can add value to a construction claim or dispute.
Author Douglas J. Mackin is a construction attorney with Cozen O’Connor in Boston, Massachusetts. Douglas counsels owners, developers, contractors, and subcontractors in all phases of a construction project, from contract negotiation through to completion, including disputes, litigation and arbitration. Douglas can be contacted at dmackin@cozen.com.
Office Location: Columbus, Ohio
Email: tnocar@hahnlaw.com
Website: https://www.hahnlaw.com/professionals/j-thomas-nocar/
Law School: The Ohio State University Moritz College of Law
Types of ADR services offered: Arbitration and Mediation
Affiliated ADR organizations: AAA Construction Panel
Geographic area served: Nationwide
A: I am a former builder turned construction attorney. I spent 26 years building before going to law school. I’ve worn every hat in the industry—D/B business owner, owner’s rep, CM at risk, GC, design/builder, subcontractor, and vendor at some point in my prior career. I chose to adapt these experiences to a law career in 2009 with the focus of practicing construction law. Now I commonly represent commercial builders and developers. AAA added me to the Construction Roster in 2022.
Q: What percentage of your current legal practice is spent on ADR work? If less than 100%, what do you do when not serving as an ADR neutral?
A: My ADR practice is small, but growing. I served as a neutral on five cases in 2023. I am primarily a construction attorney counseling clients in practical approaches to dispute avoidance, and representing clients in transactions and litigation.
Q: What are your thoughts on requiring mediation as a contractual prerequisite to litigation or arbitration?
A: Forcing parties to mediate is not a great idea. It is rarely productive. I have been involved—as many of us have—in a mediation where one party shows up for the sole purpose of satisfying the contract clause, and then just leave. A total waste of time. A successful mediation usually involves two willing parties who want to avoid litigation risks and costs, and are capable of seeing past the dispute validities to reach a business decision.
Q: What can attorneys do to best position their clients for a successful mediation outcome?
A: Prepare them for compromise. Set financial expectations using the BATNA (Best Alternative to Negotiated Agreement) approach. Go through anticipated negotiation scenarios. Review the merits of each side’s contentions but remove the emotions where possible. Mediation is for business decisions, not for trial. Assure the client that mediation settlement is voluntary, and understand the walkaway number. Have a settlement agreement in the queue that can be quickly edited with the terms of agreement and signed by the parties that day.
Q: What should attorneys and their clients take into consideration when vetting and/or selecting an arbitrator?
A: (1) the arbitrator's construction industry expertise, both technically and legally specific to your case; (2) whether the arbitrator will control arbitration costs, limit discovery, briefing requirements, etc.; (3) the arbitrator’s tendencies when it comes to awards—do they split the baby or let chips fall where they may—and (4) what factors the arbitrator considers when deciding attorney fee awards.
Q: What advice do you have for parties when considering whether to choose a single arbitrator or a panel?
A: This is generally a function of cost and risk. A panel is generally advisable when the amount in controversy exceeds $2M, when there are several parties, and/or the subject matter is exceedingly diverse or technical. Otherwise, if the single arbitrator passes your vetting as describe above, go forth.
Q: What measures do you take as an arbitrator to ensure arbitration is less costly and more efficient to litigation?
A: Arbitration should be less costly than litigation. I try to limit the amount of discovery to help in this regard. Also, we are trained to allow all evidence to be presented and heard, but I caution the parties that duplicative witnesses and hearsay testimony has little probative value and adds time to the hearing. I also generally favor pre-hearing and closing briefs and discourage opening or closing statements.
Q: How has your prior career in commercial construction management helped you to serve as a neutral in construction cases?
A: My former design/build career provides a wealth of hands-on experience to draw from that commonly expedites my comprehension of the issues in the case. I have performed many times over the very tasks that are at the center of the controversy—issuing contracts and change orders; managing design from concept to completion; creating and managing schedules, submittals and shop drawings; running and documenting progress meetings; coordinating manpower, equipment and material deliveries; managing quality and safety; and dealing with non-performing parties. This insight helps me to quickly cut through the noise to get to the heart of any construction dispute.
Q: What are some of your interests or hobbies?
A: Live music, travel, cooking, and cycling.
Engineers are not commonly thought of as storytellers. But telling a true, accurate, and convincing story is one of the most important aspects of the job. Whether testifying as an expert witness or conducting a forensic investigation, technical experts require not only deep expertise but also the ability to effectively communicate complex ideas of a technical nature. Therefore, an effective and persuasive technical expert needs to master the art and science of storytelling.
While storytelling may vary from case to case, one of the most essential techniques is visualization. Most people are visual learners. A great graphic can be more effective in delivering the technical message, enhancing comprehension, and providing a lasting impression than the expert’s report or other testimony. This is particularly important in the legal setting, in which the audience—often a judge or jury—is typically non-technical.
Creating Graphics
Common types of visuals typically used in forensic investigations and construction litigation include two-dimensional (2D) graphics such as charts, figures, timelines, three-dimensional (3D) renderings or animations, engineering analysis models, or other tools such as Augmented Reality(AR) or Virtual Reality (VR). Development of the visuals is an integral part of the forensic investigation and technical storytelling process. Visualization typically used in forensic investigations or as demonstratives in construction litigation are often created using technical illustration techniques. Technical illustration is to visually communicate information of a technical nature based on science and physics. These graphics are not only “art” but also “science” as they are based on mathematical formulation and physics-based computer simulations. To tell a compelling, impactful, accurate, and relevant story, the visuals must be consistent with the evidence, analysis results, and the expert opinion.
Common Applications
This section highlights some common applications in which the use of 3D renderings and/or animations is helpful.
Figure 1: Cutaway illustration of a composite floor (snippet from an animation, courtesy: Thornton Tomasetti, Inc.) |
Figure 2: As-designed vs As-built slab reinforcement layout (courtesy: Thornton Tomasetti, Inc.) |
(c) Sequencing – When the construction, installation, or failure of a system involves multiple steps or stages, of which the order and/or timing are relevant to the narrative, an animation may be warranted. For example, a construction sequence animation with timestamps can be used in construction delay cases to highlight the planned versus the actual construction progress at various project stages.
Figure 3: Construction sequence illustration (snippets from an animation, courtesy: Thornton Tomasetti, Inc.) |
(d) Explanation of technical concepts – One of the most important applications of visualization in forensic
engineering is to explain complex technical concepts. An animation allows the
expert to “zoom in” at any location for further review, create section cuts
and/or “see through” the interior details, such as reinforcement arrangement,
or take advantage of the motion to explain how different parts interact
dynamically in a failure mechanism. Figure 4 shows a close-up view at a
slab-to-wall connection to illustrate the failure of the steel reinforcement
and the concrete, which ultimately led to the collapse of the slab.
Figure 4: Illustration of the reinforcement failure at the slab-to-wall connection (snippet from an animation, courtesy: Thornton Tomasetti, Inc.) |
In another example, Figure 5 is a snippet from a time-lapse animation of an underground parking garage that experienced water intrusion. The animation captures accurately the locations and timing of the documented leaks in the walls and floor slab. The timescale is included to illustrate the timing of the events.
Figure 5: Time-lapse of documented water intrusion (snippet from an animation, courtesy: Thornton Tomasetti, Inc.). |
One of the first, and perhaps the most important,
tasks is to plan for the use of graphics.
The technical expert and the legal counsel need to thoroughly develop a plan for the case at hand and how the visuals will fit into the overall strategy. There are several aspects that the team needs to evaluate, including the need for graphics, potential limitations, and when to introduce graphics.
Different experts have different ways to tell stories and explain technical concepts. Understanding the strengths and weaknesses of the experts is key to more compelling storytelling. From the technical perspective, the expert needs to ensure that the visuals are consistent with the evidence (such as column and beam size as shown in drawings) and other expert testimony (such as the opinions stated in the expert report). It is critical to understand the basis of the visuals, how they are correlated with the evidence and the engineering analysis, and the underlying assumptions of the analysis model on which the visuals are based. If the visuals are based on an engineering simulation, it is important to understand the input and output of the analysis model, the model settings, any assumptions, and limitations of the analysis.
From the legal perspective, when using graphics in construction litigation, the technical expert and the legal team must be familiar with the rules of evidence to develop a proper legal strategy. There is a distinction between “demonstrative aids” or “visual aids” and “demonstrative evidence,” which is admitted and sent back with the jury or considered as “evidence” by arbitrators. To become the latter, a graphic needs to meet admissibility standards, for instance, it has to be authentic, relevant, and especially, not hearsay. It is equally critical that the visuals not be confusing, irrelevant, inconsistent with expert testimony, or highly complex. This will increase the chances of admissibility and ensure that the audience can readily comprehend and appreciate the technical story the visuals are intended to tell.
Concluding Remark
Learning how to tell a technical story to a non-technical audience, especially in the legal setting, can be a daunting task, even for seasoned experts. Proper use of storytelling techniques, such as visualization, can greatly enhance the expert’s effectiveness in presenting his/her opinions. These graphics are not just “pretty pictures,” but also play an integral part of the expert’s role as communicators and storytellers.
Company: JAMS
Office Location: New York, NY
Email: llove@jamsadr.com
Website: https://www.jamsadr.com/love/
Law School: Georgetown University Law Center (J.D. 1984)
Types of ADR services offered: Arbitration, mediation, neutral evaluation and special master services
Affiliated ADR organizations: JAMS, Chartered Institute of Arbitrators, and CPR
Geographic area served: Domestic and International
Q: Describe the path you took to becoming an ADR neutral.
A: I started my legal career practicing law as a complex commercial transactions attorney in the corporate department of a major New York law firm for eleven years. After leaving the firm, I served as chief legal counsel to several municipalities and as co-founding partner of a boutique finance, infrastructure and real estate law firm.
In my legal practice, I have served as counsel in many complex transactions involving infrastructure, transportation, construction, real estate development, public private partnerships, acquisitions, dispositions and mergers, energy, and public and corporate finance. I have represented parties on all sides of the transactions from owner, public entity, lender, issuer, contractor, borrower, equity investor, trustee, fiscal agent and closing title agent. As a result, I have extensive experience drafting, negotiating and interpreting complex agreements for sophisticated transactions from many different perspectives.
In 2017, I decided to use the knowledge that I have acquired in my legal practice to provide a practical, experienced and transactional perspective to resolving commercial disputes. This knowledge informs my decision-making as an arbitrator and my conciliatory efforts as a mediator. I believe that transactional attorneys are uniquely positioned to provide a legal and business perspective to many of the principal claims involved in complex commercial disputes.
Currently, I am a neutral with JAMS and am a member of its Global Engineering and Construction Disputes Resolution Panel.
Q: What should attorneys and their clients take into consideration when selecting an arbitrator?
A: When vetting or selecting an arbitrator, it is important to consider the subject matter expertise of the arbitrator, including experience gained through the practice of law generally and in specific practice areas. While I acknowledge that most of the ADR professionals that I know are former litigators, I am confident that transactional attorneys have the advantage of having been involved in the intricate details of drafting and negotiating the business terms of many transaction documents that are similar to many of the provisions that are subject of the ADR proceeding. Such experience is extremely important and should not be underrated in our legal system which thrives on the concept that the documents “speak for themselves.”
Equally important is the need to select well-qualified, diverse neutrals who bring a diversity of thought, perspectives and experience to decision making which improves the arbitral process. While many arbitral institutions have increased the diversity of their panels, the discretion embedded in the selection should be more inclusive.
One way to embed diversity in the selection process is to consider adding arbitrator diversity as a component of the arbitration agreement. Several institutions have adopted diversity clauses that can provide guidance for drafting a diversity component to the arbitration agreement.
Q: If you were going to draft your own dispute resolution clause in a construction law contract, what points would you include (or exclude)?
A: As a contract drafter, I have personally witnessed that many dispute resolution clauses in transaction documents do not fully receive the attention to drafting required prior to the execution of the transaction documents. Unlike many labor, environmental, tax, securities and other specialized provisions in transaction documents, many arbitration clauses are included in the miscellaneous section of contracts and may be combined with the governing law and other provisions and are not timely reviewed by the firm’s dispute resolution professionals.
In drafting dispute resolution clauses in construction contracts, there are several provisions that I recommend that parties consider for inclusion in their dispute resolution provision.
First, a couture clause designed to address the parties specific requirements. When drafting dispute resolution clauses in construction contracts, the parties should recognize that dispute resolution is a party-controlled process. The more specific the dispute resolution clause is, the less reliance will be on institutional rules and the more on party control.
The dispute resolution clause provides an opportunity for the parties to assess the possible claims that could arise during the course of the project and design well drafted ADR provisions to meet the specific needs and expectations of the parties for expedient and efficient dispute resolution. The ADR clause should incorporate an expedited, tiered process (dispute resolution boards, negotiation, mediation, and/or arbitration, as desired by the parties) within specific time frames acceptable to the parties to be handled by experienced ADR professionals.
However, in drafting a dispute resolution clause, it is extremely important that the specificity of the clause does not lead to inconsistency within the clause. If the clause is found to be internally inconsistent, the result could be the disregard of the entire arbitration agreement.
Second, an integration clause to consistently and centrally resolve disputes by ADR. The transaction documents should fit together like an intricate, completed puzzle and should include integration provisions requiring all disputes in all construction transaction documents to be subject to the dispute resolution process. This ensures that litigation is not proceeding with respect to issues arising out of one contract (without an arbitration clause) while arbitration is proceeding with nearly similar parties arising out of another contract (with a dispute resolution clause). The parties should also consider whether dispute resolution clauses should be the same in all contracts or whether some disputes, in light of the amount in dispute, or the parties involved, e.g. sub-tier contractors, may require less complex dispute resolution provisions.
Third, an arbitration appeals clause to provide for appellate review of significant issues. Although not commonly used currently, an arbitration appeal process can be incorporated into the dispute resolution clauses of the construction documents that will permit the appeal of the decision of the arbitration panel. If an appellate process is desired by the parties, it should be specifically addressed in the contract’s dispute arbitration clause. If the appellate process is not included in the contract dispute resolution clause, the parties can agree later to an institution’s optional arbitration appeal process. However, once a dispute occurs, it may be difficult for the parties to agree upon an appellate process.
For large projects, the appellate process could be customized to be used only for claims exceeding a certain threshold or utilized to preserve rights of parties for certain claims for the appellate process until the end of the project in light of all of the project claims at that time.
Q: What do you do when not serving as an ADR neutral?
A: Over the years, my ADR practice has consistently increased. However, when not serving as an ADR neutral, my boutique law firm—Love and Long, L.L.P.—represents federal, state and regional public agencies, museums, and Fortune 500 companies in the areas of infrastructure, transportation, construction and energy projects, real estate, public private partnerships, public finance, corporate governance, contracting and commercial leasing.
I have served as lead counsel to the U.S. Department of Treasury, the U.S. Department of Transportation and the U.S. Department of Commerce. I have also served as bond, disclosure, real estate and P3 counsel to New York, Pennsylvania and regional agencies.
In addition, I am an appointee to the Chartered Institute of Arbitrators, Professional Conduct Committee (2021 – 2024), an associate in the College of Commercial Arbitrator Associates Program and an academy participant in ICC 2023 – 2024 DRS Learning Academy.
The ongoing motivation for retainage reform is typically
framed in terms of reducing delays in getting payment to subcontractors who
complete their scope of work on time and free from defects.
Washington
Washington State enacted Senate Bill 5528 to reduce
retainage on private projects to 5% of the contract price of the work completed.
See RCW 60.30.010. Effective July 23, 2023, the new law now reflects
Washington’s pre-existing 5% cap on public projects. Under the new law, an
owner has 15 days after notice of completion of work to notify the contractor
of additional work required for completion of the project. After 30 days,
unpaid amounts begin to accrue a 1% per month penalty per violation. In lieu of
retainage, SB 5528 contains a provision which allows contractors and
subcontractors to tender a retainage bond to the owner or upstream contractor.
The Washington law does not apply to single-family
residential construction of less than 12 units. Notably, waiver of the new
statutory cap is not prohibited. The new law does not appear to contain
language implying the possibility of retroactivity.
New York
On November 17, 2023, Governor Kathy Hochul signed
legislation making important
changes to New York’s Prompt Payment Act (N.Y. Gen. Bus. Law §756). Much
like Washington, the New York legislation caps retainage on private
construction projects at 5%. The changes apply to all private construction
projects in New York with a contract sum over $150,000. Under the new law, New
York contractors can submit an invoice for the full amount of retainage after
achieving substantial completion.
Before the amendments, N.Y. Gen. Bus. Law §756 allowed an
owner to retain “a reasonable amount” of retainage. There is a 1% per month
penalty for violations.
Georgia
In 2022, the Georgia General Assembly passed Act 781
amending O.C.G.A. §§ 13-10-80 and 13-10-81. The relevant retainage reforms
apply to most public works projects in Georgia not including roads or highways.
The main feature of Act 781 is capping retainage on applicable public projects
at 5% of each progress statement. The statute also contains language which
allows the owner of a public works project to withhold 200% of the value of any
outstanding punch list work remaining after substantial completion. These and
other changes went into effect on July 1, 2022, and are not retroactive.
How did Retainage Become Popular?
Retainage appears to have developed as a construction industry
custom at least as early as the beginning days of the 19th century.
For example, during England’s 1840s railway boom, railroad companies began to
withhold up to 20% of contract sums to mitigate the risk of inconsistent and
under-skilled labor. Today some type of retainage is a common industry practice
in many, but not all, domestic and international jurisdictions.
Conclusion
Understanding the current retainage laws in a client’s jurisdiction is critical to help prevent disputes before they begin. Because important details of these laws vary widely from state to state, it may be helpful to review the applicable retainage and prompt payment laws during the pre-bid and contract-drafting process.
Patrick McKnight is a member
of Fox Rothschild’s national Construction Practice Group. For more
information, please contact Patrick at pmcknight@foxrothschild.com.