Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

The Contract

What does the contract say about retainage?  Traditionally retainage is established by contract.  The contract says that the paying side may withhold a certain amount of money from each payment while the work is in progress.  Then at some point at or approaching completion of the work, the paying side must pay the withheld retainage to the working side.  The contract usually identifies the point in time when that duty to pay retainage matures and the paying side is obliged to pay. 

So you must first look at the contract when the paying side become obliged to pay retainage.  Does that occur:

• When, or within a specified time after, a particular event occurs?
• Only after a particular event, plus a request for payment?

Section 9.8.5 of the American Institute of Architects (the "AIA") A201 General Conditions (2007 edition) - .PDF says that the paying side (the owner) must pay retainage when they and the working side (the contractor) each accept their respective responsibilities concerning the work as assigned in the architect's certificate of substantial completion.  When you identify when that happens you've got the first part of the answer.

You'll need to look at statutes and judicial decisions too.  Many states have enacted, or have bills pending to enact, statutes regulating retainage (frequently in Prompt Payment Acts).  Some may even mandate deadlines for paying retainage regardless of what the contract says. 

 Governing Law

The next part of the answer comes from the the governing law which identifies three crucial things:

• Which statute of limitations applies.  The one that applies sets how long the limitations period runs before it expires
• When the limitations period begins to run (the LP Start Date)
• What may suspend running of the limitations period

But you can't stop at the breach of contract statute of limitations.  Many states have a specific statute that applies to construction claims.  Because it's more specifically focused than the general breach of contract statute of limitations, the construction claim statute of limitations may be the one that applies.  But ,according to some judicial decisions (PDF) in some states, those construction claim statutes apply only to claims for construction defects, not to claims for payment owed for construction work. 

Another statutes of limitations may apply too.  Each state (and the federal government too) have different statutes of limitations for different types of claims.  But these statutes overlap.  So you must look closely not just at the statutes, but also at judicial decisions applying those statutes (PDF), to find which statute that governs the unpaid retainage claim that you're involved in.  

When Does the Statute Start to Run?

After you identify which statute of limitations applies, you must next Identify when the limitations period begins to run: what is the LP Start Date.  Here too you'll need to look at the statutes and judicial decisions too.  Is the LP Start Date when the paying side first owes the retainage but doesn't pay, when the working side requests the retainage but doesn't get it, when the working side first suffers injury because they weren't paid, or some other date. 

Going back to the contract for a moment, you also need to check there to see if it includes any terms that shorten, or lengthen, the limitations periods for filing claims.  A prime example is Section 13.7 (PDF) of the AIA's A201 General Conditions (1997 edition) starts limitations periods on claims related to the contract running at the date of substantial completion.  Without that section, the limitations periods would ordinarily start running later.  To see Section 13.7 in action, take a look at this case claiming design defects on a home in suburban Chicago.

Suspension

Once you've identified when the limitations period starts and when it expires, last you need to see if there is anything that suspends it from running.  You look for that in the statutes and judicial decisions too, especially in the judicial decisions.

Conclusion

Yes, there is a statute of limitations on claims for unpaid retainage!  But there's no quick or easy answer to when it expires.  It depends on:

• What the contract says, and 
• When the limitations period starts to run, whether anything suspends its running, and when it expires

And I regret to have to tell you that you should hire a lawyer to review the contract to address the first point and identify and analyze the applicable statutes and judicial decisions so you can address the second.