The Iowa Supreme Court vacated an appeals court decision and ruled that Graphite Construction Group was not entitled to retainage funds before its project with DMACC was complete. (Photo by Kathie Obradovich/Iowa Capital Dispatch)
The Iowa Supreme Court has ruled that Des Moines Area Community College did not have to pay a construction company retainage dollars before a project was finished, reversing an appeals court decision to the contrary.
In an opinion released Friday, the Iowa Supreme Court affirmed the Polk County District Court’s opinion that DMACC was right to refuse Graphite Construction Group’s request to compel payment from DMACC of retainage funds before the project was completed.
Justice David May wrote the court’s opinion.
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According to the opinion, DMACC hired Graphite Construction Group in 2019 to complete a construction project on the community college’s Ankeny campus. DMACC President Rob Denson said in an email the company was hired as the low bidder on the $9.8 million project to renovate the college’s automotive building, which houses its automotive and diesel program.
While DMACC generally acquiesced to monthly progress payment requests from the company, it kept 5% of those funds as retainage, or money that is withheld to ensure that material and labor can be paid for, according to the opinion. Once all claims for payments are completed, any leftover dollars are given to the contracted company.
On Jan. 4, 2022, when the project was close to finished, Graphite requested its final payment. At that time, the only funds that were left under the contract were $510,000 in retainage, the opinion stated. DMACC declined the request on the basis that the work was still incomplete.
The opinion stated that during this time, subcontractor Metro Concrete alleged that Graphite owed more than $212,000 for “unpaid services.” Metro filed suit on the claim after receiving a demand from Graphite to do so, according to the opinion.
Graphite’s claim was that DMACC was required to pay at least part of the retainage under Iowa code, as after Metro filed suit, Graphite filed a bond for $424,000. Graphite also sought to have its attorney fees covered. The opinion stated that DMACC resisted the claim on the grounds that work had not been completed.
“The contract set forth a substantial completion deadline of August 14, 2020 and a final completion deadline of October 12, 2020,” Denson said in his email. “By January of 2023, final completion of the project had still not been achieved, so DMACC terminated its contract with Graphite and thereafter hired various other contractors to finish out the project, which is now complete.”
The district court ruled against Graphite on both requests, the opinion stated, saying DMACC wasn’t required to release retainage before final completion of the project. Graphite appealed the decision, and the court of appeals reversed the decision for the retainage, but not attorney’s fees.
DMACC sought the Iowa Supreme Court’s opinion, according to the statement.
Sections of Iowa Code chapter 573 pertain to retainage, of which Graphite claimed it had rights to “even though” the project was not yet complete, according to the opinion, since it had filed the bond after Metro Concrete’s claim and completed other procedures.
May’s opinion stated that the code does not allow the retainage to be paid before “completion and final acceptance” of the project, and therefore, Graphite cannot claim it. While there are exceptions, none applied in this case.
“The district court was correct to deny the contractor’s motion to compel release of the retainage,” the opinion document stated.
The college was backed by organizations including the Community Colleges of Iowa, Iowa Association of School Boards, Iowa State Association of Counties and Iowa League of Cities in speaking against the appeals court ruling, with the filing an amicus brief agreeing with the district court’s decision.
Denson said in his email that the court’s ruling is important for DMACC as well as any other public owner who has a construction project in the works.
“This decision protects the integrity of the retainage for public owners, as well as contractors and subcontractors, in situations like this where the general contractor was requesting release of a portion of the retainage before final completion of the project,” Denson said in his email.
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