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There are a lot of deficiencies in the work. Can extra money be held back from the contractor to ensure the deficiencies are corrected?

Often there is unfinished work on the project even after completion is declared by the consultant. It is also not uncommon that there are deficiencies in the work that has been completed. In such a circumstance, the contractor wants to get paid so that workers, suppliers, and subcontractors can be paid and the owner wants to receive some assurance that the deficiencies will be corrected in a timely and workmanlike manner. A deficiency holdback is a common device used to solve this dilemma.

The Builders Lien Act does not provide specifically for a separate “deficiency holdback”. However, industry practice is that there be a deficiency holdback in addition to the holdback under the Builders Lien Act. Once the contractor has requested a certificate of completion, the owner can request that the consultant declare a value of the unfinished/deficient work and the owner should hold those funds in a separate holdback fund until that work is completed satisfactorily. In order to avoid arguments and delays at the end of a project, a deficiency holdback is something that the parties should consider before they enter into the contract so that the mechanics for a deficiency holdback can be determined before problems arise. A deficiency holdback clause should be included in the construction contract, allowing the parties to determine their respective rights.

For additional information on this topic, or any builders lien matter, please contact Amy Mortimore.

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This FAQ section is for informational purposes only, for the convenience of our visitors. While these questions and answers are about legal issues, they are not a substitute for consultation with a lawyer, and should not be relied on as a basis for any legal decision. As with anything of a legal nature, different circumstances can create different results.