What do I do if the Owner is not paying retention into an escrow account?

11 months ago

Are there any laws re: prompt payment if I’ve set up an escrow account and the public entity continues to withhold retention instead of paying my escrow agent? All parties have executed an Escrow Agreement.

Chief Legal Officer Levelset
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California has rules and regulations that govern both prompt payment and retainage on public projects.

First, Cal. Pub. Cont. Code § 10263(g) sets forth the specific form required in order for an escrow agreement to be valid. Unless the escrow agreement substantially follows the form set out by statute, the agreement is null, void, and unenforceable. Section (1) of that agreement form requires that, in order for the owner to make payment of the retainage directly to the escrow agent, the contractor must provide a written request.

An escrow agreement is a contract, and to the extent that the agreement meets the formal requirements, a breach of the agreement amounts to a breach of contract, for which the breaching party may be liable for damages. Communication with the public entity, informing them of their obligation to pay the retention earnings directly to the escrow agent pursuant to the agreement – accompanied by an additional written request – may prompt the desired action. Escalating the tome of the communication if unsuccessful, and sending a demand letter outlining possible liability and damages related to the failure to abide by the terms of the escrow agreement may also help, if the first attempt is unsuccessful. It is possible that some communication could clear this up, as the party making the payments may not be aware of the escrow agreement, the identity of the escrow agent, of the obligations imposed by the agreement itself.

With respect to prompt payment, California requires that direct contractors be paid progress payments within 30 days of invoice, although this time is extended to 39 days after invoice for state university projects. And, final/retainage payment is due within 60 days of completion of the work.

 

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