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The U.S. Department of Transportation issued guidance in its Questions and Answers section on the relationship and obligations between prime contractors and subcontractors and recipients’ duties to monitor those relationships.
- A prime contractor will no longer be permitted to withhold retainage from a subcontractor–both DBE and non-DBE–until the end of the project when it has received all its retainage from the recipient agency.
- Recipients that hold retainage must make incremental acceptances of portions of the prime contract as the work is completed so that retainage that covers the work is released before final payment for contract completion.
- If the recipient holds retainage against the prime contractor or the prime contractor holds retainage against the subcontractor, there must be a contract clause obligating the payment of retainage within 30 days of the recipient’s incremental acceptance of the work performed by the subcontractor or payment of retainage by the prime contractor within 30 days of satisfactory completion of the work performed by the subcontractor.
- The obligation to promptly pay subcontractors and to release retainage is a material term of a DOT-assisted contract. However, the obligation does not arise if there is a legitimate dispute over the subcontractor’s performance. Recipients are encouraged to develop a payment dispute resolution process.
- A prime contractor may not withhold payment to a subcontractor that has satisfactorily completed work on the contract as a means to address a dispute between the prime contractor on an unrelated contract.
- A broad array of penalties for prime contractor non-compliance is available to recipients.
- The recipient has an obligation to investigate a payment complaint and provide a timely response to the complainant.
- The lack of a contractual relationship between the agency and the subcontractor has no effect on the agency’s obligation to monitor prompt payment (and other DBE Program requirements).
- Relying solely on complaints or notices from subcontractors is insufficient; affirmative steps to monitor and enforce prompt payment and retainage requirements (electronic monitoring systems, cancelled checks, etc.) are required.
- A subcontractor may contact the appropriate Operating Administration (Federal Highway Administration, Federal Transit Administration or the Federal Aviation Administration) for relief.
See the American DBE Magazine Fall 2016 issue for the original article.