Can a property owner withhold 10% at the completion of a project because they want to see the receipts for change orders?
1 reply
Oct 2, 2019
Retainage isn't regulated in a particularly strict manner on Arizona private construction projects. Generally, an owner is entitled to withhold a "reasonable amount" - but there isn't much guidance on what might be considered reasonable. However, considering retainage is limited to 10% on Arizona public works projects, it seems possible that withholding 10% retainage would be considered "reasonable." Note, though, that retainage generally shouldn't be withheld unless it's specifically allowed in the contract.
It's also worth noting, though, that an owner can decline a billing, estimate, or a portion of either. To do so, they must provide a written statement that reasonably details why it's been declined. Of course, they must have a valid reason for doing so. Some common reasons for declining a progress payment (in whole or in part) are:
1. Unsatisfactory job progress;
2. Defective work or materials;
3. Disputed work or materials;
4. Failure to comply with the contract;
5. Claims filed/evidence claims will be filed;
6. Contractor's failure to make timely payments;
7. Property damage;
8. Evidence that the contract will go over budget.
Bottom line
So, generally, an owner will be entitled to withhold a reasonable amount of retainage, even when there isn't a specific issue - though retainage should only be withheld if it's allowed in the contract. But, when there's a specific dispute relating to payment - like with the work performed - an owner is also entitled to decline part or all of certain progress payments, as necessary.
For more on Arizona's retainage laws: Arizona Retainage Guide and FAQs.