Currently, 14 states have retainage laws that either apply specifically to private contracts or apply to both public and private contracts. These states include Arizona, California, Connecticut, Idaho, Maine, Minnesota, Montana, New Mexico, North Carolina, North Dakota, Tennessee, Texas, Utah and Vermont. Richard A. Stochenberg & John M. Limbaugh, Fifty-State Review of Retainage Laws, 22-SPG Construction Law. 24, 24-29 (2002).
Although all the states’ statutes specifically address how retainage can be handled during a private construction project, they vary widely in their application.
For example, California’s private project retainage statute:
• Requires retainage be released within 45 days after the “date of completion”;
• Obligates the general contractor to pay each sub within 10 days from the time that all or any portion of the retention was paid by the owner;
• Limits the amount held after the date of completion to 150% of the estimated value of the disputed amount; and
• Subjects the owner or general contractor to a charge of 2% per month, attorney’s fees and costs for wrongfully withheld retainage. Cal. Obligations Code § 3260 (West 2002).
It now seems like these types of statutes are gaining popularity. For example, the state of Missouri has just passed a retainage statute on private contracts that is arguably the most comprehensive of its kind. The statute limits retainage on private projects to no more than 10% (unless special circumstances are present); requires the owner to hold the retainage in trust for the benefit of the contractor and subs; bars the general contractor from holding more retainage from subs than the owner holds from the general; requires the release of retainage within 30 days of substantial completion; requires that an owner or general contractor release retainage within five days of receipt of “acceptable substitute security”; requires the release of retainage to early finishing subs; limits funds held after substantial completion to just 150% of the value of incomplete work; requires that subs be paid within seven days of payment to the general contractor; and allows the court to award 1.5% interest per month, plus attorney’s fees if retainage is held improperly.
Susan McGreevy is a partner at Husch & Eppenberger, Kansas City, Mo., 816/421-4800, e-mail to (-REDACTED-) .
