CaliforniaConstruction ContractRetainage

I am a sub contractor working for a general contractor. I have a contract with the company for job #321. They ask me to do some extra work, but I do not get a contact. Can they hold retention on the amount due for the extras that are beyond the contract amount?

3 replies

Jun 11, 2019
First, it's worth noting that any time change orders or extra work come into play, it's important to get that in writing. That way, if a dispute pops up, it's easier to sort out what's what.

Regardless - that's a good question. In California, retainage rules will vary depending on whether the project is public or private. On public projects, up to 5% retainage can be withheld. On private projects, there isn't a statutory cap on retainage - so some higher amount can be withheld if it was agreed upon in the contract. But, for private jobs, if no retention was agreed to, retainage generally should not be withheld unless there's some issue present with the work that's been performed. This article provides good insight into that idea: California Retainage Laws Make More Sense After Supreme Court Ruling.

Now, if there is some issue with the work that's been provided, retainage can be withheld for up to 150% of the amount subject to the dispute (dropped to 125% for public projects). The reason for withholding retainage due to a dispute must be a valid reason, and the amount that's being withheld must directly tie to that reason.

As for an issue where a written contract was used for some work but not for all work - it's fair to wonder whether retainage that's present in the written agreement would also be applicable to the work that was performed outside of the written contract. But, it may be safe to assume that work completed beyond the scope of a written contract was done pursuant to the terms for the original agreement for work. At the same time, there's probably a fair argument that because there was no written agreement for extra work performed, the terms of the original agreement should not be binding. But, if retainage wasn't present or withheld on the original agreement, there'd be little basis for arguing it'd be appropriate for extra work provided (unless there was some issue with the work, as described above).

Now, if you're asking whether all payment for extra work provided can be withheld because it wasn't included in the contract - generally, the answer is "no". However, recovery can be a lot harder when proper change order or extra work procedures aren't followed. When that work is done without a written contract, and/or when the contractual guidelines for issuing extra work aren't followed, those amounts might not be recoverable with a tool like a mechanics lien claim. Still, before taking action, making a threat of lien (like a Notice of Intent to Lien) or threat of legal action (like under theories of breach of contract, unjust enrichment, prompt payment laws, or retainage laws, potentially) can help recover payment without the need for further action.

For more information on retainage claims in California, and on the practice in general, these resources will be helpful:
(1) California Retainage Overview and FAQs
(2) Basics of Retainage
(3) The Ultimate Guide to Retainage in the Construction Industry.
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