Hi there - I know Caltrans cannot hold retainage to a GC on payment applications, per PCC 7202. However, may a GC hold retainage on a Subcontractor under PCC 4108? I hate not having any sort of leverage with the Subcontractor.
Mar 6, 2018
That's a great question- and bear with me. Under PCC 7201(b)(1) a public entity, contractor, or sub may withhold up to 5% of payment when there is no good faith dispute present. Yet, that section also states that a contractor's retention "shall not exceed the percentage specified in the contract between the public entity and the original contractor." This would appear to limit the ability for a general contractor to withhold retention on a project where retention is not included in the prime contract. However, as alluded to above, PCC 4108 may come into play. Under PCC 7201(b)(2), if notice is given that bonds will be required (as set out by PCC 4108(c)), and if the sub or supplier who receives that notice neglects or refuses to obtain the required bonds, it appears that the limitations on retainage under PCC 7201(b) are alleviated. So, if notice was sent that a sub or supplier needed to obtain bonding, and that bonding was not obtained, retainage might not be limited to 5% or to an amount under the contract between the prime contractor and the public entity. Ultimately, through, it appears that withholding retainage on a Caltrans project when there isn't a good faith dispute could be risky business, and penalties (such as 2% monthly interest) may come into play if retention is improperly withheld. Before deciding on whether or not to withhold retention, consulting legal counsel familiar with local retainage laws would be the safest move.