News & Press

Important Decision from the California Supreme Court in United Riggers & Erectors v. Coast Iron & Steel

AGC of California's Legal Advisory Committee and specifically, those in the Amicus Subcommittee, briefed and argued an important issue in the California Supreme Court recently concerning an errant interpretation of California’s prompt payment act statute for retention on private works projects. The California Supreme Court’s decision in United Riggers & Erectors, Inc. v. Coast Iron & Steel Co., __ Cal.4th __ (May 14, 2018; Case No. S231549) accepted AGC of California's position that certain disputes do not qualify as a basis to withhold payment under the applicable prompt payment statute. As AGC argued, a proper application of the statute requires the dispute to affect the amount due to qualify as a basis for withholding the payment. In this important decision, United Riggers sought payment for its retention and an extra work claim. There was no dispute the retention was due, but Coast Iron & Steel disputed the amount of the extra work claim. As a result of disputing the amount of the extra work claim, Coast Iron withheld 150% of the disputed extra work claim amount from the undisputed retention due. In other words, Coast Iron attempted to leverage the extra work claim by withholding amounts that were undisputedly due United Riggers.  

The United Riggers decision disapproved a published opinion from the Court of Appeals in the case of Martin Brothers Construction, Inc. v. Thompson Pacific Construction, Inc. (2009) 179 Cal.App.4th 1401, which previously held “any dispute” would suffice as a basis to withhold payment (even disputes as to extra amounts claimed). Although the United Riggers case involved a direct contractor withholding sums from a subcontractor, the “any dispute” rationale has been employed in some instances by owners to leverage extra work claims from general contractors. In its ruling, the California Supreme Court considered and harmonized numerous prompt payment act statutes governing private and public works, progress and retention payments, and found a common purpose: for prompt payment penalties to apply unless the basis for withholding payment resulted in a dispute over the amount that was due, as opposed to disputes over additional amounts claimed. Specifically, the California Supreme Court stated:

Consistent with this rule, a direct contractor may delay payment when the sufficiency of the subcontractor’s construction-related performance is the subject of a good faith dispute, when liens or other demands from third parties expose the direct contractor to potential double payment, or when payment would result in the subcontractor receiving more than the minimum amount both sides agree is due. What a direct contractor may not do is withhold a retention that is simply part of that undisputed minimum amount, because a dispute has arisen over whether additional amounts over and above the retention might also be owed. In effect, the payor must be able to present a good faith argument for why all or a part of the withheld monies themselves are no longer due. 

Given the Court’s opinion, the rationale set forth above will apply to any owner’s effort to leverage amounts undisputedly due, which should help mitigate against gamesmanship and facilitate payments for contractors.  

A special thanks to AGC of California’s Legal Advisory Committee members on the Amicus Subcommittee who assisted in AGC’s Amicus brief, including John Carpenter of Balfour Beatty, who argued AGC of California’s position to the California Supreme Court.