Contractors often include in their subcontracts provisions that allow them to set off amounts otherwise due a subcontractor to compensate for damages it has incurred or anticipates will incur due to the subcontractor's breach of its obligations. These provisions are generally enforceable, and in many states the common law allows such set-offs-even absent express set-off provisions. When the contractor's damages are significant, set-offs are typically imposed early on before the remaining subcontract balance becomes insufficient to fund the full sum of the damages. But, as a recent case illustrates, a contractor might not be permitted to set off funds that were due and owing to the subcontractor before the incident.
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