Davis Erection sued to collect money owed by Jorgensen, and tried to garnish (seize) payments that Eriksen Construction owed to Jorgensen. Eriksen claimed it didn't owe Jorgensen anything because it had the right to offset (subtract) its own claims against Jorgensen from what it owed. The Nebraska Supreme Court ruled that you cannot use a setoff unless you take clear action to claim it—like sending written notice or making entries in your books. The court reversed the lower court's decision and sent the case back for trial.
If you want to offset money owed to you against money you owe a contractor, you must document it in writing or in your records at the time you claim the setoff. Silence or informal agreement won't work.
Setoffs only work against money that is certain and due now. You cannot offset uncertain, future, or contingent claims (like potential damages or disputed change orders) against money you definitely owe today.