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Subcontractor asking for release of retention before my portion of the work has been completed

6 months ago

I have a subcontractor who continues to ask me about getting paid on retention. Their portion of the work is complete however we are not done. So are we obligated to pay their retention before we receive ours?

Senior Legal Associate Levelset

That’s a tough situation to be in – and it’s a tricky balance. On one hand, it’s perfectly reasonable for a subcontractor to be paid in full once their work has been complete. On the other hand, if a contractor is paying their sub’s retention out of their own retainage allotment, then it’s tough to ask a contractor to pay out of pocket.

Luckily, Oregon’s retainage statute provides some clarity here…

Under 701.420 of the Oregon retainage statute, when a subcontractor finishes their work, they can notify their customer that their work is complete. Upon such a notification, that subcontractor is entitled to being notified whether their work is accepted or whether more work/ repair work is required. And, if the work is accepted or if no notice is given, that sub is entitled to be paid in full – including retainage. If payment isn’t made or if notice isn’t given to the sub about the acceptance or rejection of the work within 15 days, interest will eventually begin accruing on that unpaid amount.

That sounds like a contractor might be getting left with the bill, but once a contractor has paid their sub the retainage owed, the contractor is entitled to be reimbursed from the owner – and the owner must release a portion of the contractors retainage in order to compensate the contractor for the retainage they’ve already had to pay their sub. Once a contractor has paid their sub in full, including retainage, the contractor must notify the owner in writing – then the owner must pass along that corresponding retainage amount to the contractor within 15 days.

That can sound a little confusing, but it essentially boils down to this: A sub is entitled to full payment shortly after their work is completed and accepted. While a contractor may have to pay this sub out of pocket for retainage that’s being withheld from the owner, the owner must reimburse the contractor shortly after the contractor releases their sub’s retainage. And, if the rules aren’t followed, interest penalties will accrue for the party who failed to make payment.

By properly communicating this process with everyone involved, it should be relatively easy to coordinate – and ultimately, it’s pretty fair for everyone involved.

For more information on Oregon’s retainage requirements, this resource should be valuable: Oregon Retainage Overview and Statutes.

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