DES MOINES, IA — The Iowa Supreme Court has sided with the Polk County District Court's decision, affirming that Des Moines Area Community College (DMACC) was not required to pay retainage funds to Graphite Construction Group before the completion of a construction project.

The court issued its opinion on Friday, rejecting an appeals court ruling that had supported Graphite's demand for retainage funds before the project's final completion.

Justice David May authored the court's opinion.

DMACC's Retainage Decision Upheld

According to the court's opinion, DMACC hired Graphite Construction Group in 2019 for a $9.8 million renovation project at the community college’s Ankeny campus, specifically for the automotive building that supports the automotive and diesel programs. DMACC President Rob Denson explained that the company was chosen after submitting the lowest bid for the project.

Although DMACC approved monthly progress payments, it withheld 5% of those payments as retainage, which serves as a security to ensure that materials and labor are paid for. Once all payments and claims are settled, any remaining funds are released to the contractor.

On January 4, 2022, as the project neared completion, Graphite requested the remaining retainage funds. However, DMACC refused, citing that the project was not yet fully finished, with only $510,000 in retainage remaining.

Subcontractor’s Lawsuit and Dispute over Payments

During this time, subcontractor Metro Concrete claimed Graphite owed more than $212,000 for unpaid services, and Metro filed a lawsuit. Graphite then filed a bond for $424,000 and sought to have its attorney fees covered. However, DMACC maintained that the project was incomplete and resisted the request for retainage payment.

"The contract set forth a substantial completion deadline of August 14, 2020, and a final completion deadline of October 12, 2020," said Denson. "By January of 2023, final completion of the project had still not been achieved, so DMACC terminated its contract with Graphite and hired other contractors to finish the work, which is now complete."

The district court sided with DMACC, stating that retainage could not be released before the final completion of the project. Graphite appealed the decision, and while the Court of Appeals reversed the decision regarding retainage, it upheld the ruling concerning attorney’s fees.

DMACC then requested the Iowa Supreme Court’s review of the case.

Court Upholds District Court Ruling

In its opinion, the Iowa Supreme Court referenced Iowa Code Chapter 573, which governs retainage, and ruled that Graphite was not entitled to the funds until the project was completed and accepted. The court clarified that exceptions to this rule did not apply in this case.

“The district court was correct to deny the contractor’s motion to compel release of the retainage,” the opinion stated.

Support for DMACC came from various organizations, including the Community Colleges of Iowa, the Iowa Association of School Boards, the Iowa State Association of Counties, and the Iowa League of Cities, all of which filed amicus briefs supporting the district court's decision.

Denson emphasized the importance of the ruling for both DMACC and other public institutions handling construction projects.

"This decision protects the integrity of the retainage for public owners, as well as contractors and subcontractors, in situations like this where the general contractor was requesting release of a portion of the retainage before final completion of the project," Denson said.