Oral Extra, Withheld Retainage, and an Unlicensed Subcontractor
Your company holds a signed $148,000 contract to reroof a 24-unit apartment complex in Baton Rouge. The agreement requires written change orders, provides 10 percent retainage, and conditions final payment on the architect's punchlist sign-off. Mid-job you replaced 26 sheets of deteriorated decking - $7,900 - after the owner's property manager told your foreman by phone to 'just keep going, we'll square up later.' No written change order was ever issued. The owner now refuses to release the $14,800 retainage, citing ponding at one downspout area, and says the decking was 'already in the contract.' Separately, your metal-coping subcontractor, who was never licensed, is demanding $16,500 and threatening to record a lien. The contract says nothing about subcontractor licensing.
1. Assess your position on the $7,900 of decking and on the retainage. What theories apply, what evidence do you need, and what do you do in the next ten days?
Read the worked answer
Two claims, two different vulnerabilities.
Decking ($7,900). The written-change-order clause is a contractual condition, and the owner will argue it bars the claim. Your counter-arguments, in order of strength: (1) the scope documents themselves - check for a unit-price line or a 'replace deteriorated decking as directed' allowance; if it exists, the dispute is quantity, not entitlement; (2) waiver or estoppel - an authorized agent directed the work, knew the quantity, and accepted the benefit; (3) quantum meruit or unjust enrichment as a fallback, which in Louisiana is subsidiary and requires you to show no other adequate remedy. Evidence wins or loses this: the foreman's daily report with date, location, and sheet count; photographs of the 26 sheets; dumpster and delivery tickets; the phone record; and any same-day text or email. A confirmatory email sent today ('per your call of the 14th, we installed 26 sheets at the agreed unit price') does more than any legal theory.
Retainage ($14,800). Retainage is security for completion and defects, not a negotiating fund. Demand it in writing with a line-item punchlist response. The ponding claim is yours only if you caused it - check drain elevation and slope, take straightedge readings, and get an engineer's letter if the deflection is structural or pre-existing.
Ten-day action plan: itemized statement of account and demand letter with documentation; written request for the punchlist and for the recorded notice of substantial completion; verify with the clerk of court whether a notice of substantial completion or termination has been filed, and calendar the lien period from that filing date - under the Louisiana Private Works Act the clock runs from recordation of that notice, not from your last day on the roof. Negotiate hard, but never let the calendar run while you negotiate.
2. How should you handle the unlicensed subcontractor's demand and the lien threat?
Read the worked answer
Do not treat the missing license as a free roof. Treat it as leverage with a deadline.
Verify first. Check with the state licensing board whether the sub's own contract value triggers a license. Louisiana requires a commercial license above a statutory dollar threshold, and you apply that threshold to the subcontract, not to your prime contract. Also check whether the sub used a licensed qualifier or was working under someone else's license.
If a license was required and it had none: the sub's ability to enforce the subcontract in court is limited, which is real leverage. But you still received installed value, and the sub may pursue the owner directly through the Private Works Act, which puts your final payment and your relationship with the owner at risk. Withholding everything usually produces a lien and a delay, which costs more than the dispute.
Practical path: negotiate a documented compromise for the value of material and labor actually installed; pay against a signed, notarized lien waiver and release; require final lien waivers from material suppliers; and confirm the sub's insurance before the check goes out.
Forward fix: never sublet on this project size again without a certificate of licensure, a certificate of insurance, and an indemnity clause that warrants licensure. Using an unlicensed sub on work that requires a license exposes you to board action and to owner claims, regardless of who was right about the $16,500.
3. Name the contract changes you will make before the next job and explain what each one prevents.
Read the worked answer
Each clause should map to a specific failure on this job.
- Deemed-approval change order clause. Written direction required, but with a time limit: if the owner does not respond to a written change notice within, say, five business days, the change is deemed approved at the stated price. Prevents the 'we'll square up later' phone call.
- Unit pricing for concealed conditions. Insert per-sheet prices for decking replacement and per-hour rates for framing repairs at bid time, so the quantity dispute is the only open issue, not entitlement.
- Retainage release mechanics. Tie retainage release to substantial completion with a defined punchlist period and completion deadline, and add interest on wrongfully withheld retainage. Prevents indefinite holdback for an unrelated defect.
- Lien and notice cooperation. Require the owner to provide the recorded notice of substantial completion promptly, and require your notice obligations as a contract term. Prevents calendar-driven loss of lien rights.
- Subcontractor prequalification warranty. Every sub warrants licensure and insurance, provides certificates before mobilizing, and indemnifies you for the breach. Prevents the coping dispute from ever reaching your desk.
One more, specific to Louisiana: add a clause requiring any change to be confirmed by email from a named representative, and get the property manager's name and authority in writing at the preconstruction meeting.