At LegaTech, we are currently assisting a contractor in a dispute with a petrochemical company (the Employer) regarding the release of good performance retention funds. The project, which involved building a polymer plant, was stopped before completion when the Employer decided not to renew the contract. Now, the contractor is seeking the release of retention funds, but the Employer is refusing to release the money, arguing that the project was incomplete.
According to the contract, the retention money was set to be released in two parts: 50% after provisional acceptance and the remaining 50% after final acceptance. Since the project was never completed and the acceptance milestones were never reached, the Employer believes they have the right to withhold the funds. The contractor, however, argues that they have completed a significant portion of the work, and since the project remained uncompleted due to the Employer’s acts and omissions, they should still be entitled the retention.
A crucial issue in this case is the Defect Liability Period stated in the contract. This period, which determines how long the contractor is responsible for fixing defects after completion, is tied to certain milestones. The contract specifies that the Defect Liability Period lasts for 18 months from provisional acceptance or 24 months from mechanical completion, whichever occurs first. However, if delays in issuing these certificates are caused by the Employer, the period extends up to a maximum of 66 months from the Effective Date of the contract.
In this case, the 66-month period had passed by the time the contract expired. This raises a critical question: can the contractor still claim the retention funds, even though the project was not finished and the 66-month period has passed? The contractor believes the project was halted due to the Employer’s actions, not their own failure, and should not be penalized for the project’s incomplete status.
The main legal challenge in this case is whether the contractor is entitled to the retention funds despite the project not being completed. The Employer insists that the retention is tied to specific milestones, which the project did not meet. However, the contractor argues that they have completed a large portion of the work in good faith, and the project was stopped due to reasons beyond their control.
To resolve this, we are exploring potential solutions, such as negotiating. This would allow the Employer to retain some funds for security while fairly compensating the contractor for the work already completed. We are also reviewing the contract to determine if there is any flexibility in the retention clauses, particularly in cases where a project is halted for reasons beyond the contractor’s control.
This case highlights the complexities that arise when projects are halted before completion. Retention clauses are meant to ensure the contractor’s performance, but when external factors such as the Employer’s decision to stop the project come into play, the situation becomes more nuanced. At LegaTech, we are focused on helping both parties reach a fair resolution that considers the work completed, the contract terms, and the circumstances surrounding the project’s stoppage.