Withholding Construction Payments Due to Poor Workmanship May Be Illegal
Withholding funds in excess of the cost of repairs is "unlawful," court concludes.

Many churches have withheld the final payment under a construction contract as "leverage" to force a contractor to correct defective or poor workmanship. But depending on the amount withheld, such a practice may be inappropriate.

This is what a Mississippi court concluded in a recent case. An electrical contractor entered into a contract with a church to do the electrical wiring for a new building. The church paid part of the contract price, but when the building was inspected by a bank appraiser the electrical work was found to be substandard.

The pastor and building committee were advised to withhold the balance until repairs were completed. The court noted that when a contractor substantially performs the terms of a construction contract, it is entitled to payment of the contract price less the cost that is required "to bring the building up to the specifications of the contract between the parties."

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Posted: September 3, 2001
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