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General Contractor is pressuring me (Architect) to release retention on a number of subcontracts.

California

I am an Architect in California working on a California commercial project ($20 million valuation). We are four weeks PRIOR to Substantial Completion date and General Contractor is pressuring me to release retention on Demolition and Excavation subcontracts. He is saying this is 'standard practice'. I am firmly objecting for following reasons: 1. subcontract scopes are not even 100% complete 2. punch list has not even been issued yet Does G.C. have any legal grounds for pushing me into releasing retention?

4 replies

Jun 19, 2020
This issue will depend mainly on the various party contracts. If you have a contract with the owner, your duty is to protect the owner from damages and prematurely releasing retention could cause damage to the owner if issues arise at the end of the project and there is not enough retention to cover all issues. These issues could include defects that are discovered during final stages of construction, discovery of unpaid suppliers or subcontractors, defects in the construction or the GC's refusal to take care of all of the punch list items. If you are currently having other issues with the contractor about lien issues, quality issues, delays, or any other issue that is impacting the project, you should err on keeping the retention. If the project has gone smooth, there has been no major problem issues, and the contractor has always been on schedule, then you may want to discuss the release of funds with the Owner and if the owner OK's it then, at your discretion, allow it. If the Contractor believes this is standard practice in the industry at that location, you may want to contact other architects in this area who also routinely are hired to oversee the pay application process in your area or construction attorneys who generally practice in your area and ask them. Also, make sure you review the contracts between the various parties, as the contracts will control. If the contract is clear that no retention is paid until the contractor achieves substantial completion or until the punch list has been completed, then you will be taking on liability from the owner if you prematurely allow the retention to be released (i.e., if there arises an issue). In general, however, if the contractor is completing the project per plan and per schedule, you may not have much exposure in allowing these subs, which have been done for a long time, to get the rest of their money. Sorry this response did not include a simple answer, but your question has a very complex answer due to the nature of the question.
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Jun 19, 2020
Thank you Tony for your detailed and thoughtful response - this was tremendously helpful! This project is a substantial renovation to an existing outdoor retail center that has remained fully open during construction. Due to the nature of the sequencing and phased nature of the construction, there has been demolition and excavation works occurring all along through construction. So while on a normal project, by the end Demolition and Excavation would be long since complete, on this project it has been ongoing. In any event I really appreciate your suggestions and commentary - this is a great resource!
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Jun 22, 2020
I am glad I was able to help.
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Jun 22, 2020
This is not complicated: if retention is not owed pursuant to the Contract Documents, say “no, I do not have the authority to release retention at this point during the project.” You are not guided by the general’s perception of industry custom on this issue, but rather to terms of the prime contract. The general could have contracted for the early release of all or portions of retention when it negotiated the prime contract. It didn’t or it was unsuccessful. In either event, you have no authority to revise the terms of the Contract Documents. Your primary obligation is to administer the prime contract pursuant to your agreement with the owner. Your duty is to protect the owner’s interests through the exercise of your construction administration duties and obligations. If the general has a compelling argument for early release of a portion of retention, then tell the contractor to put the request in writing as a “no cost” change order, present it to the owner, advise the owner of the pros and cons of the request and let the owner make its business decision.
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