When can construction owners withhold progress payments for contractor delays? Globe Contracting v. Hour Explained

In Globe Contracting v. Hour, the Utah Court of Appeals addressed when construction project owners may justifiably withhold progress payments from contractors who experience delays. The case provides important guidance on contract interpretation and the application of Utah’s construction payment statutes.

Background and Facts

Globe Contracting agreed to construct an office building for Dr. Hour’s chiropractic clinic for $650,000, with construction to be substantially completed within 210 days of permit issuance. The contract allowed Hour to withhold payments under four specific circumstances: defective work not remedied, Globe’s failure to pay subcontractors, Globe’s failure to pay for labor/materials, or damage caused by Globe to another contractor. When construction was delayed by weather and concealed debris, Hour sent termination notices in June and July 2016 but ultimately gave Globe until September to complete the work. Hour stopped making progress payments after July 2016, and Globe continued working until September when Hour officially terminated the contract.

Key Legal Issues

The central issue was whether Hour was justified in withholding progress payments based on Globe’s alleged breaches: performing defective work, failing to pay subcontractors, failing to complete the project timely, and hiring an unlicensed subcontractor. The case also involved the application of Utah Code section 13-8-5, which the trial court used to award prejudgment interest, costs, and attorney fees.

Court’s Analysis and Holding

The Court of Appeals affirmed that Hour materially breached by withholding payments without justification. Regarding the delay claim, the court found that time was not of the essence in this construction contract, distinguishing it from real estate contracts where courts more readily imply such terms. Even if time were material, the delays were caused by weather and Hour’s own change orders, which the contract expressly allowed to extend the completion date. The court rejected Hour’s other breach claims, finding insufficient evidence that defective work existed when payments stopped or that Globe failed to pay subcontractors. Significantly, the court reversed the awards of prejudgment interest and costs under section 13-8-5, holding that this retention proceeds statute applies only when funds are actually retained in escrow accounts pursuant to contract terms, not when payments are simply withheld due to alleged breaches.

Practice Implications

This decision clarifies that construction contract payment disputes are governed by traditional breach of contract principles rather than Utah’s specialized retention proceeds statute. Practitioners should carefully draft contracts to specify when withholding payments is justified and ensure compliance with marshaling requirements when challenging factual findings on appeal. The court’s analysis of attorney fee awards for travel time by non-local counsel also provides guidance for fee applications in construction cases.