An owner has a statutory duty to retain 10 percent of the money due an original contractor during the progress of work under an original contract, and for 30 days after completion of the contract for the benefit and protection of derivative claimants. The 10 percent retained may be either 10 percent of the contract price of the work to the owner or 10 percent of value of the work done. In the second instance, the amount is measured by the proportion that the work done bears to the work to be done, using the contract price. If there is no contract price, the reasonable value of the completed work is used.
The owner’s duty to retain funds is measured from actual completion of all work under an original contract. Completion meaning “the actual completion of the work, including any extras or change orders reasonably required or contemplated under the original contract.” Thus, an architect’s certification of completion at a particular date may not be determinative if actual work is performed after the date specified in the architect’s certification. In that event, funds must be retained for the full 30 days after completion of the actual work performed, and merely retaining funds for 30 days after the date specified in the architect’s certification does not fulfill statutory requirements.
The duty to retain, however, is contract-specific, so that if an original contract is terminated or abandoned, and the owner hires a substitute contractor to complete the work, the owner’s duty of retainage is measured from the termination or abandonment of the first contract, not from the ultimate completion of the work under the replacement contract. However, if a subcontractor is entitled to or has requested notification from the owner of termination or abandonment of the original contract, and the owner fails to provide that notice, the failure of the subcontractor to file the lien affidavit within 30 days of termination or abandonment will not prevent the retainage lien from attaching.
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