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Can a GC withhold final payment of retention to their subcontractors if the owner has paid partial retention?

CaliforniaPrompt Payment Retainage

A notice of completion was filed on a public works project in CA for which we are a subcontractor. 60 business days have passed; we were informed by the general contractor that retention was received and they asked for our "FINAL" Conditional release waivers and other final documents. We were notified today that because the general contractor had only received partial retention payment, they were withholding our retention payment until they received FULL payment. Is that legal? Can they withhold retention payment from subcontractors on the basis of only receiving partial payment?

1 reply

Dec 5, 2019

On California public works projects, if a general contractor receives retainage payments from their customer, that GC must release payment within 7 days of receiving the retainage payment themselves. This is true even if retainage isn't released in full. And, as you may know, any amounts that are being improperly withheld are subject to a 2% per month interest penalty. To be sure, Cal. Pub Cont. Code § 7107(d) states: "within seven days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its subcontractors from whom retention has been withheld, each subcontractor’s share of the retention received." Now, if the retainage paid to the GC was specifically earmarked for a particular subcontractor, then a contractor is entitled to release retainage to that particular sub. And, a GC may withhold a portion of the retainage proceeds it owes to a sub if there's a bona fide dispute between that sub and the GC. But even still - in that case, the contractor is only entitled to withhold up to 150% of the value of the amount in dispute, not the entirety of retainage.

Additional California prompt payment and retainage resources

For more information on California's prompt payment and retainage requirements, here are some excellent resources: - California Retainage Guide and FAQs - California Prompt Payment Guide & FAQs - California Retainage Laws Make More Sense After Supreme Court Ruling

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