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S.F. No. 947 - Retainage Requirements For Building And Construction Contracts - The First Engrossment, as Amended by the A-3
 
Author: Senator Jason Rarick
 
Prepared By: Carlon D. Fontaine, Senate Counsel (651/296-4395)
Stephanie James, Senate Counsel (651/296-0103)
 
Date: March 26, 2019



 

Section 1Retainage.  Current law permits a public contracting agency to reserve up to five percent from any progress payment to a contractor on a contract for a public improvement.  This withheld amount is "retainage."  Under current law, the agency may hold the retainage until work is complete.  Section 1 proposes new requirements and prohibitions on public construction contracts related to retainage, including the following:

Paragraph (b) requires, for construction contracts over $5,000,000, the public contracting agency to reduce retainage to no more than 2.5 percent if the work is 75 percent or more complete and contract requirements are being met.

Paragraph (c) requires a contracting agency to release any remaining retainage no later than 60 days after substantial completion.

Paragraph (d) requires a contractor to pay out any remaining retainage to its subcontractors no later than ten days after receiving retainage from the public contracting agency, unless there is a dispute about the subcontracted work. If there is a dispute, the contractor must pay out retainage to a subcontractor not involved in the dispute, and provide a written statement about the reason for the withholding to the affected subcontractor and the public agency.

Paragraph (e) prohibits a contractor from reserving retainage from a subcontractor in excess of the amount allowed to be reserved by the public contracting agency. Requires a public contracting agency, upon written request, to notify a subcontractor about a progress payment, retainage payment, or final payment made to the contractor. Requires a contractor to include public contracting agency contact information in any contract with a subcontractor.

Paragraph (f) specifies that after substantial completion of a project, a public contracting agency may withhold no more than: (1) 250 percent of the value of incomplete or defective work; and (2) one percent of the value of the contract or $500, whichever is greater, not to exceed $10,000, pending submission of all final paperwork by a contractor. Requires written notification of any basis for withholding to the contractor and any requesting subcontractor. Requires any amounts withheld for incomplete or defective to be paid within 45 days after the completion of the work.

Paragraph (g) provides a definition of “substantial completion.”

Paragraph (h) provides that the maximum retainage percentage allowed is the retainage percentage withheld by the public contracting agency from the contractor. 

Paragraph (i) prohibits withholding retainage for warranties or warranty work.

Effective date. Provides that the section applies to agreements entered into on or after August 1, 2019.

Section 2Progress payments and retainage.  Adds similar requirements as in section 1 pertaining to use of retainage in other building and construction contracts.  This existing section of law also caps the amount that can be held back at five percent. The amendment proposes new requirements and prohibitions on construction contracts related to retainage, including the following:

Paragraph (b) requires, for construction contracts over $5,000,000, the owner or agent to reduce retainage to no more than 2.5 percent if the work is 75 percent or more complete and contract requirements are being met.

Paragraph (c) requires the owner or agent to release any remaining retainage no later than 60 days after substantial completion. Provides a definition of “substantial completion.”

Paragraph (d) requires an owner or agent to reduce the retainage at the same rate reduced by the owner or agent and pay out any remaining retainage to its subcontractors no later than ten days after receiving retainage from the owner or agent, unless there is a dispute about the subcontracted work. If there is a dispute, the contractor must pay out retainage to a subcontractor not involved in the dispute.

Paragraph (e) specifies that after substantial completion of a project, an owner or agent may withhold no more than: (1) 250 percent of the value of incomplete or defective work; and (2) one percent of the value of the contract or $500, whichever is greater, not to exceed $10,000, pending submission of all final paperwork by a contractor. Requires written notification of any basis for withholding to the contractor and any requesting subcontractor. Requires any amounts withheld for incomplete or defective to be paid within 45 days after the completion of the work.

Paragraph (f ) provides that the maximum retainage percentage allowed is the retainage percentage withheld by the public contracting agency from the contractor. 

Paragraph (g) prohibits withholding retainage for warranties or warranty work.

Paragraph (h) prohibits retainage from being used as collateral.

Paragraph (i) clarifies that the provisions of this section do not apply to public contracts where a public agency has entered into a contract for improvements to public property.

Effective date. Provides that the section applies to agreements entered into on or after August 1, 2019.

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