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When can I lien a project for retention?

Many times we are one of the first contractors on site. We typically finish our work within a few months. These projects that we are working on take sometimes 2-3 years before they are complete. Per Colorado law we have to file a lien within 120 days of the last day we are on site, thus we typically send an email stating our intentions to start the lien process at 90 days, file a notice of intent at day 100 and file the lien around day 110 if we still have not received payment - for all payments, not including retention. The problem is that the GC's/Owners are pushing back and telling us the owner has not released retention thus they cannot release retention. So for a project that is 2 years long and we are done with our scope within the first 6 months, by the time the project gets to the end, and the owner starts releasing retainage, we are well past the 120 day mark and seemingly don't have leverage because a lien would be null. The best we have seen done up to this point is to have our retention held reduced by half.

1 reply

Sep 8, 2020

This is, unfortunately, the ultimate problem with retainage in the construction industry. Particularly for early phase contractors such as yourself. This issue is exacerbated by the fact that there are no regulations regarding retainage on private projects in Colorado.

The problem with retainage and mechanics liens

If your contract stipulates that retainage should be released within 90 days after completion of your scope of work; then these amounts would be "due or owing" for the purposes of a mechanics lien. However, this is typically not the case. So this leaves subcontractors in a tough position. If you look to the Colorado lien laws, the amount must be due and owing. And if you consider what retainage is, it is money owed, but not necessarily due. This puts claimant's in a tough position, where the claim may be filed, but if required to enforce (foreclose) their claim in court, they may run into some difficulties. To make matters worse, under CRS 38-22-128 "Any person who files a lien under this article for an amount greater than is due and without a reasonable possibility that said amount claimed is due and with the knowledge that said amount claimed is greater than that amount then due... shall forfeit all rights to such lien plus such person shall be liable to the person against whom the lien was filed in an amount equal to the costs and all attorney's fees. So what's a subcontractor to do? In states like Texas and New York, the lien laws specifically provide for a lien on retainage. But most states do not. Since the Colorado statutes and case law don't provide much help on this issue, it's up to the terms of the contract and your negotiation skills.

Alternatives to retainage

Obviously, your best bet is to eliminate retainage all together. But if the hiring party is having retainage withheld, they'll see no reason not to withhold retainage from their subs. Many subcontractors have begun the practice of offering two contracts prices, one where retainage is withheld, and a reduced price for a contract where no retainage is withheld. As mentioned above, another one way would be to include a provision requiring the release of retainage within 90 days of completion of the contract. That way retainage does become due and matches up with your lien policy timeline. Also, you can try to get creative about how retainage is withheld under your contract. One would be, as you suggested, to have what is known as variable retainage. This would require a provision where retainage is either no longer withheld after 50% completion, or funds withheld up until that point are released upon 50% completion; or both. These can also be structured at various milestones or completion of line items. Or even have retainage applied only to labor, that way (at the very least) material costs are covered to keep up with cash flow on the project. Lastly, you can also consider posting a retainage bond, this would essentially be substituting securities for the retainage withheld. However, the bond premium on retainage bonds can sometimes be more expensive than the amount withheld; which doesn't really solve the problem. As I mentioned above, this is a tricky situation, and unfortunately doesn't have a clear answer. Retainage laws are outdated, and incongruent with most mechanics lien laws. And, in my humble opinion, should be eliminated all together, as there are plenty of other protections available to owners and contractors to deal with the issues retainage is meant to protect against. Hope this helps!

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