Can an Owner or General Contractor Withhold Payment Because of Punch List Items?
Punch list disputes are among the most common payment issues in construction projects. Owners and general contractors often point to unfinished or corrective work as a reason for withholding payment. While punch list items may justify withholding some money in certain circumstances, they do not automatically permit withholding the entire contract balance.
What Is a Punch List?
A punch list is a list of incomplete, defective, or corrective items identified near the end of a construction project. Common examples include paint touch-ups, hardware adjustments, damaged materials, cleaning issues, and other minor corrective work.
Punch list items typically arise after substantial completion, when the project is generally complete and capable of being used for its intended purpose but still requires minor work.
The existence of a punch list does not necessarily mean that payment can be indefinitely withheld.
Can Payment Be Withheld Because of Punch List Items?
In many situations, yes. An owner or general contractor may have the right to withhold payment for work that remains incomplete or defective.
However, the amount withheld should generally be reasonably related to the cost of completing or correcting the punch list work.
A small number of minor punch list items often does not justify withholding a substantially larger contract balance.
Can the Entire Balance Be Withheld?
Usually not. Courts and construction professionals commonly distinguish between substantial completion and final completion.
Once a project is substantially complete, the remaining punch list work may represent only a small fraction of the overall contract value.
Although contract terms vary, withholding the entire unpaid balance because of minor corrective items may be difficult to justify if the cost of completing those items is relatively small.
What Does the Contract Say?
The construction contract often controls the parties' rights regarding payment and punch list work.
Many contracts allow retainage to be withheld until final completion. Others permit withholding only amounts reasonably necessary to protect against defective or incomplete work.
Before withholding payment or responding to withheld funds, contractors should carefully review the payment, retainage, substantial completion, and default provisions of the contract.
How Do Punch List Items Affect Mechanic's Liens?
Contractors should exercise caution when relying on punch list work to extend mechanic's lien deadlines.
In many situations, minor corrective work, warranty work, or punch list items may not extend the deadline for filing a mechanic's lien.
Waiting until punch list work is completed before evaluating lien rights can create unnecessary risk if statutory filing deadlines expire.
What Should Contractors Do If Payment Is Being Withheld?
Contractors should first identify the specific punch list items being cited and determine whether the withholding is proportionate to the cost of completing those items.
Maintaining detailed project records, photographs, correspondence, payment applications, and completion documentation can be valuable when disputes arise.
Contractors should also promptly evaluate mechanic's lien rights and other legal remedies before applicable deadlines pass.
Need Help With a Construction Payment Dispute?
Payment disputes involving punch list items, retainage, substantial completion, mechanic's liens, and contract interpretation can be complex.
Attorney Nicolas C. Oehler assists contractors, subcontractors, suppliers, and construction professionals throughout Ohio with payment disputes, mechanic's liens, bond claims, construction contracts, and construction litigation.