By attorneys Brad Beaman, Danielle Haindfield, Kristine Stone and Conner Wasson
The Iowa Supreme Court recently issued a decision in Graphite Construction Group, Inc. (formerly Rochon Corporation of Iowa, Inc.) v. Des Moines Area Community College (DMACC), which clarified retainage requirements for public construction projects under Iowa Code chapter 573.
Iowa Code chapter 573 requires public owners to withhold not more than five percent from each payment application submitted by a contractor on a public construction project. The amount withheld is the project “retainage” and is held by the government entity until the end of the project to ensure the contractor completes the work and pays its subcontractors.
In 2022, Graphite was constructing a project for DMACC and a subcontractor filed a claim against the project retainage asserting it had not been paid by Graphite. Graphite served a demand on the subcontractor requiring it to file a lawsuit on its claim under Iowa Code chapter 573. After the lawsuit was filed, Graphite filed a bond in twice the amount of the 573 claim and then filed a motion asking the district court to require DMACC to release the retainage funds early because the release of those funds was now secured by the bond. Graphite also asked the district court to require DMACC to pay its attorney fees for improperly withholding the retainage after the bond had been filed. The district court denied Graphite’s motion, holding that under Iowa Code chapter 573, a general contractor cannot force suit on a subcontractor’s claim against the retainage until after the project is completed and finally accepted. While the Iowa Court of Appeals reversed this decision, the Iowa Supreme Court vacated the Court of Appeals’ decision and affirmed the district court’s ruling.
The Supreme Court determined that a general contractor cannot obtain retainage by bonding off a 573 claim before project completion and final acceptance. Additionally, the Court denied Graphite’s request for attorney fees, concluding they were not the prevailing party in the case.
This is an important and clarifying case for public owners dealing with claims under Iowa Code chapter 573 as it also affirms the legal obligation of public owners to withhold retainage until 30 days after final acceptance. Special thanks to Community Colleges of Iowa, Iowa Association of School Boards, Iowa State Association of Counties, and Iowa League of Cities, who engaged Jason Craig and Kristine Stone of Ahlers & Cooney, P.C. to file an amicus curiae brief in this matter, which offered valuable analysis of the statutory framework governing retainage on public projects.
For questions or further details about this case, or how it may impact any claims on your current projects, please contact one of our attorneys in the Construction Law Practice Group.
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