Withholding Contractor Payments
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| When a construction project ensues, the contractors are generally paid for their work through a series of progress payments. When the contractor's work is delayed, he may receive reduced payments. Additionally, some owners may go so far as to withhold payments completely for delay in the contractor's performance. However, an owner may not rightfully withhold payments unless they are clearly warranted. To ensure the owner's protection in the event that payments are withheld for a contractor's performance delay, the construction contract should include a provision authorizing the owner's withholding in the event that the contractor's completion of his work is delayed beyond the agreed-upon interim and final completion dates.
If the owner withholds a contractor's payment in error, the contractor is justified in stopping work on the project. Further, if it is the owner's lack of payment that prevents the contractor's performance, the contractor can not only terminate the contract but also seek damages for his costs and lost profits. To assist the parties in clearly identifying their rights with respect to withholding payments, some states have enacted statutes providing a limitation on the amount that can be withheld. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |