Illinois Construction Law Blog : Illinois Construction Lawyer & Attorney : Foran Glennon Palandech & Ponzi Law Firm : Chicago IL

An interesting issue we’ve been coming across in contract negotiations over the past few months are the different retainage mandates of the states for private and public contracts. Most states have statutes affecting the amount of retainage permissible in public contracting, and some states have laws governing the amount of retainage allowed in contractual arrangement for private agreements.

What’s fascinating about the different laws regarding retainage is that they evince the true spirit of a republic with the different states acting much like the laboratories Justice Brandeis contemplated in New State Ice Co. v. Liebmann.  Some states fashion their laws to protect owners, some to protect contractors, some even attempt to protect subcontractors and owners.

In Illinois there is no construction law for private contracts regarding retainage, but there is the recently proposed amendment to the Contractor Prompt Payment Act, that we’ve posted about before. For public contracts, the Illinois Statutes don’t specify a percentage, but based on certain amounts for the public construction of highways, the state may place funds with an Illinois financial entity if the retainage is over $20,000 and the parties agree. Funds can be withheld at the request of a contractor/sub. For Highway projects, the Standard Specifications for Road and Bridge Construction dictates terms for retainage.

Wisconsin statutes list a maximum percentage of 5% on public contracts and, like many of the retainage statutes for public contracts, states that no funds can be retained after 50% of the work is complete along with terms for additional retainage for nonsatisfactory progress. There is no Wisconsin statute for retainage on private projects.

In Michigan, the statutes for retainage on public contracts cap the amount at 10% and there is no law regarding private retainage.

Ohio has retainage set at a maximum rate of 8% under the Ohio Revised Code  and mandates the escrow of the funds with interest falling to the contractor.

Minnesota has a public project limitation of 5%. Minnesota also has a private project construction law statute that allows an owner to keep up to 5% but does not allow for retainage for residential improvements nor is the owner allow to retain funds from an architect, or for other professional services.

Iowa has a public limitation of 5% of the labor and materials.

The retainage statutes outside the Midwest with provisions for private contracts generally deal with either limiting retainage percentages or with specifying to whose benefit interest on retained funds will run.

As with any transaction, where the different incentives rest is important.  The question of which party is receiving the benefit of an agreement to retain funds until some future contractually agreed term is met is also varied. Statues like Alabama’s (§8-29-3), provide that retained funds produce interest for the subcontractor while the benefit of retaining monies to ensure proper performance accrues to the contractor/owner. 

Texas’ Property Code regulates retainage on private contracts through its mechanic’s lien statute. This method is novel and makes sense by allowing the retainage on the owner’s end while also protecting the owner and any possibly affected subcontractors by ensuring that some funds are at least set aside in case a contractor fails to pay monies through to its subs.

Some states like California and Vermont provide for explicit release dates if retainage has been held back, but make no determinations regarding percentages. Interestingly, none of the 50 states has any egregious conditions for retainage or a law that clearly favors one party to the transaction over the other.

Given the plethora of statutes concerning the matter, it’s best to check for the particular state legislation before deciding to include or exclude a retainage provision and such a provisions specific terms.

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Last week we brought you the complaint against Castle Construction. This week, we feature another move by Attorney General Lisa Madigan on behalf of home-owners across the state.

With the spring remodeling season underway and construction beginning for many, Madigan addressed the issue – from her press release:

“Home repair, remodeling and construction complaints consistently rank among the top that my office’s Consumer Fraud Bureau receives each year, especially during the warmer months,” Madigan said. “Consumers need to make sure to ask questions before choosing a contractor so that they can avoid the types of companies we have sued today.”

To that end, the Attorney General’s office brought several suits against:

• Boss Construction, Inc., a New Lenox, Ill., based company that sells and installs gutters, downspouts, roofing, siding, doors and windows, and its President Steven R. Smith,
• Alpine Glass & Window Co., a Wilmette, Ill.-based window and door installation company, and its President Carol L. Bernahl,
• John M. Burow, doing business as John’s Home Repair, a Willow Springs, Ill.-based home repair service,
• Shane Rasmussen and Paul Haley of 123 General Construction, Inc., a Frankfort-based remodeling company,
• American Dream General Construction Company, based in Berwyn, Ill., and its President Carlos Villalvazo.

We have the complaint against American Dream and Villalvazo here.

The acts alleged in the complaint are important for home-owners and can act as a guideline or at least offer some insight about things to look for when contracting for repair and remodeling work:

• Make sure your contractor is licensed as a roofing contractor if they’re doing roofing work for you;
• Don’t let payments in advance of work get too costly, you should see some performance before they start taking your money, and then payments should be made incrementally, but not without a waiver (see below);
• Ask for your consumer rights pamphlet on home repair “Home Repair: Know Your Consumer Rights” made public by the Attorney General’s office;
• Check the construction permits to make sure they’re accurate and valid;
• Get a full accounting and demand a written sworn statement and waiver of lien before you make any payments… do not give over any form of large down-payment;
• Know about your three-day right to cancel;
• Do your research – How was this company recommended? Are they a company? Are there online comments about the company or its work? – Is a license required for their specialty?
• If you’re having trouble getting in touch with your contractor, or your phone calls aren’t being returned, you may think about contacting someone who can help;

Protecting yourself and your rights is the first step in making sure you don’t get taken for a ride.

                The Southtown Star has also published an article on this matter.

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Check your bids… Double-check your bids… Triple-check your bids.

In a suit over a $244,600,000 project, the Appellate Court ruled in this case that the failure to include a copy of the MWRDGC’s Affirmative Action Ordinance’s required “Utilization Plan” with the bid is a material failure which allowed the rejection of the applying joint-venture’s low bid and the award of the contract to the next-highest bidder.

That’s right. The opinion again reemphasizes the law that a minor variance between the submitted bid documents and what is required will not require the rejection of the proposed bid but a “material” variance will require rejection.

The elaboration on what is material is best left to the circumstances of each case, but we know from this opinion that leaving out a signed form that would bind the bidder to its listed subcontracts allowed for an unequal bargaining power between bid-submitters that was material. The argument is that without the signed form, a bidder could try to walk away from its contracts with the subs or renegotiate them – an option that those bidders signing and submitting the form with the entire contract would not have.

Interestingly, the court also noted that the failure to submit the form created an issue about whether a contract was even formed given that there would be no acceptance of the offer put forth by the MWRDGC when the offer included the need to submit the form. The court found that the failure to comply with all the terms of the offer was not an acceptance of the offer but rather, technically, a rejection of the offer and submission of the bid without the required form was the proposition of a counter-offer.

The first justification for upholding the award of the contract to the next-lowest bidder (one that did comply with the contract terms and submitted the proper forms) is one we’ve all seen before. The second justification is a bit different. It relates to the law of actual contract formation and brings into the arguments over the rejection of public-bids an entirely new justification, that, while always present in contract law, is not the limited notion of “material v. minor” that we are used to in bid disputes.

In any event – making sure you’ve complied with the full terms of the bid process is always a good idea.

The opinion can be found here.

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