A contractor receives a stop payment notice on a project with a contract value of $450,000. The contractor must withhold what amount from payments to the subcontractor?
Correct Answer
C) The lesser of the amount claimed or amount owed
Under Louisiana law, upon receiving a stop payment notice, the contractor must withhold the lesser of the amount claimed in the notice or the amount currently owed to the subcontractor.
Why This Is the Correct Answer
Under Louisiana law, when a contractor receives a stop payment notice, the contractor must withhold the lesser of (1) the amount claimed in the notice or (2) the amount currently owed to the subcontractor. This prevents the contractor from being required to withhold more than they actually owe the subcontractor, which would be unjust.
Why the Other Options Are Wrong
Option A: 110% of the amount claimed
110% of the amount claimed is a rule that appears in some other states' lien laws to provide a cushion for the claimant. Louisiana does not use a 110% multiplier for stop payment notice withholding.
Option B: 10% of the total contract value
10% of the total contract value ($45,000) is not the withholding rule. The total contract value is irrelevant to the withholding calculation; only the amount claimed and amount owed to the sub matter.
Option D: The full amount claimed in the notice
Withholding the full amount claimed sounds protective but could exceed what is actually owed to the subcontractor. Louisiana law uses the 'lesser of' formula to keep withholding fair and proportional.
Memory Technique
Stop notice = stop at the lesser amount. Imagine a stop sign: you cannot go past what you actually owe. Lesser = safer for everyone. 'Lesser of claimed or owed' = Louisiana stop payment rule.
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