The Construction Counselor

On November 22, 2024, the Iowa Supreme Court entered an order on a matter arising from a general contractor’s motion demanding that a public owner release retainage on a construction project prior to final completion of the project, with the Supreme Court denying that contractor’s motion and allowing the public owner to continue withhold retainage. The case is Charles L. Smith, Trustee in the Bankruptcy of Metro Concrete, Inc. v. Des Moines Area Community College (represented by Fredrikson attorney Jodie McDougal) and Rochon Corporation of Iowa, Inc. n/k/a Graphite Construction Group, Inc. Read the decision (PDF).

For the factual background and description of legal issues in this case, see earlier blog posts, "Retainage Rights on Public Construction Projects: Iowa Supreme Court Hears Appeal," and "Retainage Rights on Iowa Public Projects: Appeal Now Pending Before the Iowa Supreme Court."

The decision turned on interpretation of Iowa Code section 573.16. In ruling in favor of the public owner, the Court held that the timing restriction set forth in Iowa Code section 573.16 — which generally prohibits a party from bringing a lawsuit to adjudicate rights to the retainage until after expiration of 30 days (but before 60 days) following the completion and final acceptance of the project — precluded the general contractor from requesting early release of retainage (save two specific exceptions that were not at play) until such completion and final acceptance of the project. More specifically, the Court held that section 573.16(1)’s timing requirement applies to both 30-day demands to subcontractors, as well as the bond off procedure, set forth in section 573.16(2). While such 30-day demand and bond-off procedure was only infrequently used by general contractors prior to final completion of the project in our experience, this decision resolves any debate over whether such procedure was permissible.

The above holdings mean that a general contractor can no longer force a subcontractor to file suit on its Chapter 573 Claim, by sending a 30-day demand, and subsequently bond off such claim, prior to the post 30-day final completion/acceptance mark. This is good for subcontractors because, first, subcontractors will no longer be forced to commence lawsuits early in order to avoid losing that right altogether, and second, the rights of other subcontractors to the retainage will be maintained. It is also good for public owners, as it allows public owners to continue to withhold retainage to protect all subcontractors and protect themselves for work not yet performed.

In addition, the Court held that Chapter 573 generally contemplates only one suit, encompassing all claims against the retainage, which can only be filed after the post 30-day final completion/acceptance mark, but on or before the post 60-day final completion/acceptance mark. This is good from an efficiency standpoint for all parties.

If you have questions regarding public construction projects or construction law in general, please contact Jodie McDougal (jmcdougal@fredlaw.com, 515.242.8971) and Michael D. Currie (mcurrie@fredlaw.com, 515-242-8907).