| Iowa Code chapter 573 (2022) regulates contracts for the construction of public improvements. Chapter 573 provides requirements to ensure that public construction gets completed and that contractors and subcontractors are compensated. One of the requirements is “retainage,” which is money that the public entity collects by withholding a small portion (no more than 5%) of its monthly progress payments to the contractor. The purpose of retainage is to assure “payment of claims for materials furnished and labor performed on” the project. Iowa Code § 573.13. Once the claims are satisfied, the remainder of the retainage can be released to the contractor.
Des Moines Area Community College (DMACC) hired Graphite Construction Group, Inc. (Graphite) to serve as the contractor for a construction project. Graphite began work on the project and made monthly requests for progress payments. DMACC made payments but withheld 5% of each payment as retainage. As the project neared completion, Graphite requested final payment, but all that was left under the contract was the retainage. Graphite had not yet completed the project, so DMACC declined payment.
In the meantime, Metro Concrete, Inc. (Metro), a subcontractor who provided services for the project, believed that Graphite owed for unpaid services. Graphite filed a “Motion to Compel Defendant DMACC to Release Retainage.” Graphite argued that they filed a bond for twice the amount of Metro’s claim, and, therefore, Iowa Code Section 573.16 required DMACC to pay some or all of the remaining retainage to Graphite and attorney fees. DMACC resisted the motion, arguing that the project was not completed; thus, Graphite was not entitled to the retainage. The district court denied Graphite’s requests, holding that DMACC was not obligated to release the retainage prior to “final completion and acceptance of the project.” Additionally, the district court held that Graphite was not entitled to attorney fees. Graphite filed an appeal.
The Iowa Supreme Court affirmed the district court’s ruling. The Iowa Supreme Court held that chapter 573 does not allow a contractor to obtain the retainage before the “completion and final acceptance” of the project Id. § 573.14(1). The Court further acknowledged that there are exceptions in limited circumstances but noted that none of the exceptions applied here. Given that there has been no “completion” or “final acceptance” of the project, Graphite was not entitled to the retainage.
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