The Construction Counselor

On October 10, 2024, the Iowa Supreme Court heard oral argument in Charles L. Smith, Trustee in the Bankruptcy of Metro Concrete, Inc. v. Des Moines Area Community College (represented by Fredrikson attorney Jodie McDougal) and Rochon Corporation of Iowa, Inc. n/k/a Graphite Construction Group, Inc., a case involving retainage rights by owners on public projects.

A video to the oral argument can be accessed here. The Iowa Supreme Court accepted this appeal following DMACC’s application for further review on April 4, 2024. The application for further review can be viewed here. The resistance to the application can be found here.

This case involves the interplay of competing provisions contained in Iowa’s “Little Miller Act,” enshrined in Iowa Code Chapter 573. Iowa Code Chapter 573 governs the rights and obligations to retainage funds in public construction projects for owners, general/principal contractors and subcontractors.

Right to Early Release of Retainage vs. Right to Withhold Retainage for Unfinished Work

Specifically, this case arises from a general contractor’s application to a public owner for early release of retainage under Iowa Code § 573.16(2). Generally, section 573.16(2) allows a general contractor to “bond off” a claim made by a subcontractor in double the amount of the claim. Once the claim has been bonded off, the contractor can request release of retainage to the owner for 200% of the amount of the claim — a public owner is required to withhold retainage in double the amount of all claims under section 573.14(1). In this case, following its demand to a subcontractor to file suit on its claim and the lawsuit that followed, the general contractor bonded off the claim and requested early release of retainage to the public owner. The project at issue, however, was not at final completion. This is where the conflict arose. Under section 573.28(2)(c), the owner of a public construction project is entitled to withhold retainage in double the amount of the value of incomplete work. Because of the significant value of unfinished work on this project, the public owner refused to release retainage in double the amount of the claim. Releasing retainage in double the amount of the bonded off Chapter 573 claim would have dropped the retainage fund below the 200% threshold of unfinished work, which, based on section 573.28(2)(c), the public owner believed it was within its right to refuse. The statute does not address which of these provisions prevails when such a conflict arises or if the contractor is able to bond off a claim prior to final completion and acceptance of the project.

Consequently, the general contractor filed a motion requesting the district court to order the public owner to release retainage. This district court denied the motion. On appeal, the Court of Appeals reversed the district court’s ruling, holding that the public owner was required to release double the amount of the bonded off claim, regardless of the public owner’s rights under section 573.28(2)(c) to withhold retainage for incomplete work.

With conclusion of the oral arguments earlier this month, this case has now been fully submitted to the Iowa Supreme Court.

A decision is expected in approximately six months or otherwise sometime in 2025. Another update will be provided at that time.

Industry Impact

This case will clarify how Chapter 573 governs the interplay of the competing statutory provisions described above. Therefore, public construction project owners, general contractors and subcontractors have an interest in the outcome. Signifying that public construction owners have the most at stake, an amicus brief was filed on behalf of Community Colleges of Iowa, the Iowa Association of School Boards, Iowa State Association of Counites and the Iowa League of Cities. That brief is here.

If you have questions regarding public construction projects or construction law in general, please contact Fredrikson attorneys Jodie McDougal and Michael D. Currie.