Avoiding The Tennessee Retainage Requirements

In Vic Davis Construction, Inc. v. Lauren Engineers & Constructors, Inc., the Tennessee Court of Appeals approved a contractor’s use of closeout costs to “holdback” 5% of the contract price without complying with the retainage requirements of the Prompt Pay Act.  

The subcontractor alleged that the general contractor withheld a percentage of payment in a line item that was designated as “Turn-over, As-Builts, Final Cleanup, Demobilize.” The subcontractor noted not only that the amount of this line item ($108,835.00) equaled five percent (5%) of the total contract price but also that $108,835.00 was not representative of the cost of “Turn-over, As-Builts, Final Cleanup, Demobilize” as it related to the subcontractor’s scope of work on the project. The subcontractor claimed that such work would cost less than $20,000.00. What is more, at trial, the subcontractor’s project manager testified that the general contractor referred to these amounts as “holdback” in