A Florida appellate court reinforced a straightforward contract drafting point: A contractor cannot withhold retainage beyond the contract’s payment deadline based on an alleged default unless the contract allows for it.
In GSD Contracting, LLC v. All American Builders & Debris Removal, Inc., Florida’s Fourth District Court of Appeal affirmed a $71,582.98 retainage award to a terminated subcontractor. The subcontract tied retainage release to project completion and did not authorize further withholding after termination.
The Payment Terms Controlled
All American Builders & Debris Removal, the subcontractor, performed framing, drywall, insulation, and acoustical ceiling work on a five-story hotel.
All American was hired by the project’s original general contractor, who was fired during the project and replaced by GSD Contracting. When GSD came aboard, All American had completed about 93.9% of their work, but they were prevented from completing the work due because other trades needed to complete their work first.
Before All American could return to the site and finish the work, there was a significant water intrusion issue on site, which caused mold. The subcontractor eventually declined to return to work until the mold was properly remediated to protect their workers. GSD disputed that further remediation was necessary and terminated All American. GSD withheld the subcontractor’s retainage, totaling $71,582.98.
The terms of All American’s subcontract required 10% retainage from progress payments until 90 days after final completion of the project. Just as important, the agreement contained no termination-for-cause provision or other term allowing GSD to keep retainage based on an alleged default. However, there was a termination for convenience clause (more on that below).
The court therefore found there was no contractual basis to withhold payment for the completed work.
The Convenience-Termination Clause Limited Both Parties
The termination-for-convenience clause allowed All American to recover payment for work performed through termination, plus demobilization costs. It excluded payment for work not performed as well as anticipated profit on that work.
The trial court awarded All American a total of $116,882.98, consisting of the $71,582.98 retainage and $45,300 for unperformed work. The appellate court affirmed the retainage award but reversed the award for the unperformed portion ($45,300). Interestingly enough, All American didn’t request that amount, and its owner testified that the company sought only the retainage.
The court did not decide whether GSD’s mold remediation was inadequate. It also noted that its analysis could differ if the subcontract included a provision allowing termination for cause.
The decision is therefore a contract-interpretation lesson, not a general rule requiring the immediate release of retainage whenever a subcontract ends. GSD took over the project for another contractor, but they were still bound by the terms that contractor had with their subs, and it was GSD’s responsibility to understand what was in the contract.
Key Takeaway: Coordinate Retainage and Termination Remedies
Owners, contractors, and subcontractors should review payment and termination provisions together. If a termination for cause provision permits withholding for documented completion or correction costs, the agreement should address:
- When the right to withhold arises
- What notice and cure procedures apply
- Which costs may be offset
- How the offset will be documented and calculated
- When the undisputed balance becomes due
A termination-for-convenience clause should separately address payment for completed work, demobilization and other termination costs, stored materials, and any negotiated fee.
The subcontract should also align those terms with incorporated prime-contract terms, closeout requirements, and the definition of final project completion.
A401® – Standard Form of Agreement Between Contractor and Subcontractor provides a coordinated framework for contractor-subcontractor payment and termination terms. Review the standard framework before adapting retainage, default, and closeout provisions for a specific project.
How To Coordinate Subcontract Payments
Clear subcontract terms help contractors and subcontractors understand when retainage becomes due, what conditions must be met, and which documents support payment. Explore practical ways to coordinate payment timing, release conditions, and closeout requirements to reduce delays and disputes.
