Know When to Hold 'Em and Know When to Fold 'Em: Settlement Strategies in Construction Disputes

By: Rex A. Christensen, Esq.

You have reached the end of a project and you submit your final payment request. Instead of just paying you the amount you have invoiced, the general contractor tries to lowball you. Maybe he claims he doesn't have to pay you any retention until he is paid retention by the owner. Maybe he tells you there is something wrong with part of your work. Maybe he knows you are desperate for cash and would prefer a partial payment to a fight over full payment. Whatever the situation, the following strategies may help when you are faced with the prospect of accepting less than full payment on a contract.

First, know your rights under the contract. If, for example, the contract really does allow the general to withhold your last ten percent until he receives his retention payment from the owner, it will do little good to threaten, demand, or sue him. It will be best to save your energy and resources for a fight you can win. If the contract isn't clear to you, however, consultation with an attorney may clarify the issue. A good attorney will advise you when you have an issue worth fighting over, and will also advise you when such a fight would be a waste of time and money.

Second, be realistic about your performance under the contract. Even the best contractors sometimes run into problems. If your performance was lacking, be prepared to acknowledge any deficiencies. Don't give away anything unnecessarily, but if the general insists on a discount for work that you know was sub-par, fighting over it would be pointless.

Third, consider the cost of legal services. Any drawn-out dispute over money owed will eventually lead to the involvement of attorneys. An attorney will probably charge somewhere between $150.00 and $350.00 per hour. At these rates, it will not take very long to rack up thousands of dollars in legal fees. If the matter goes as far as a lawsuit, the fees would probably reach tens of thousands of dollars. The cost of legal services should be factored into your consideration, but may still be justified. Your answers to the following questions will tell you whether hiring an attorney makes sense:

  • Can my business withstand the financial burden of paying thousands of dollars in legal fees in order to recover the money I think I'm owed?
  • How much money am I fighting over? The costs of hiring an attorney will almost never be justified if you are fighting over less than $10,000.00.
  • Am I willing to run the risk of having to pay the other party's attorney's fees as well? A.R.S. 12-341.01 allows a judge to add the prevailing party's reasonable attorney's fees to whatever judgment is obtained.

In the end, your response to a contractor who wants to discount your final payment should be based on reasoned analysis. If you are not reasonably sure you would win if the matter went to court, or if your business could not sustain the cost of ongoing legal fees, your best bet may be to simply cut your losses and move on. However, where the amount withheld is high, and where there is no reasonable justification for the discount, resorting to the legal system could be your best option.

Construction Law Articles

By: Rex A. Christensen, Esq.
Rex A. Christensen, Esq.
CHRISTENSEN LAW FIRM
2168 East Williams Field Road, Suite 200-A
Gilbert, Arizona 85295
(480) 378-2400
rex@rexachristensen.com