Retainage Provision - AASHTO Subcommittee On Construction
The AASHTO Subcommittee on Construction Contract Administration Task Force surveyed the states to determine the effect of the 1999 DBE regulations that required prime contractors to pay subcontractors in full upon completion of the subcontractors work. The regulation disallowed the previous prime contractor practice of withholding retainage from subcontractors until final acceptance by the state. The survey was performed in the September through November, 2001 time frame. Questions and responses are summarized in Table 1.
| Does the state use zero retainage1? | For those states that have zero retainage, is zero retainage used for all projects? | For those states with zero retainage, did they have zero retainage before the DBE regulation change? | ||||
|---|---|---|---|---|---|---|
| Zero | Some Value | Both, depends on specifications, unrelated to funding source 2 | All | Federal Aid Only | Yes | No |
| 19 | 27 | 1 | 18 | 1 | 7 | 12 |
- Retainage is defined as payments, cash, withheld from estimates for accepted work performed.
- Some states may have contractor options for retainage; however, they were tallied as a zero retainage when all contractors chose non-retainage options. Only Idaho was tallied as "Both." See discussion below.
State Specific Comments of Interest
Arkansas - A zero retainage state, they have provisions that allow prime contractors to retain up to 10% from subcontractors.
Colorado -They have retainage but do not allow primes to hold retainage for subcontractors. In response to the DBE regulations, they added a provision whereby they hold retainage only on the work performed by the prime.
Connecticut - They will probably move to zero retainage. They are at 2.5 % currently.
Delaware - The local Contractors are pushing for zero retainage. They are at 5% currently.
Florida - They are tallied as a zero retainage state; however, they hold retainage if a contractor gets more than 10% behind schedule. They require, from the prime contractor, a monthly certificate that states that are paying their subcontractors, unless there is a dispute. If there is a dispute, the prime contractor notes in the certificate.
Idaho - They have both zero and 5% retainage. They have zero retainage when the surety allows 100% progress payments. They have contract language that allows the Engineer to hold retainage if the Engineer determines the state's interest is not secure. Most projects have zero retainage.
Iowa - They hold 3% retainage on the first $1,000,000 for a total maximum of $30,000. The provision has been in place about 3 years.
Kansas - They were not zero retainage before the regulation as tallied, however, they were in the process of going to zero retainage when the regulation came out.
Louisiana - They allowed the contractors to use retainage or retainage bonds several years back, prior to the regulation. All contractors use "retainage" bonds.
Maryland - Their retainage is 5%. They allow reduced retainage if the contractor has a high performance rating.
Minnesota - We have listed Minnesota as a no retainage state but they do hold retainage for landscape projects where they withhold for plant maintenance, etc. They have had zero retainage for 15 to 20 years.
Mississippi - Reduced their retainage to 1.5% after the regulations came out.
Missouri - They have no retainage and they rely on contract bonds. If a contractor is in trouble on a project or fails to pay bills, they can begin retainage. They were tallied as a zero retainage state.
Nebraska - They withhold 1% up to a maximum of $25,000.
Nevada - They withhold 5% up to a maximum of $50,000.
New Jersey - They withhold 5% of the first 50% of the contract, however, they allow bonds to be placed in an escrow account for the amount of retainage held and then pay the contractor the retainage. We have tallied them as a retainage state.
North Carolina - They are zero retainage on federal aid projects only. They are tallied as zero retainage.
North Dakota - They withhold 4% until the project is complete.
Oklahoma - They went to zero retainage in 1995 as a result of state legislation. They use an overpayment bond.
Tennessee - They are required by law to withhold 3.5%.
Texas - They are required by law to withhold 5%. If a contractor uses recycled materials, by law they withhold 4%. At the request of a contractor, retainage is placed in a contractor interest bearing account that is protected by collateral.
Virginia - They have zero retainage unless a contractor falls more than 10% behind schedule. They were tallied as a zero retainage state.
West Virginia - They allow a 102% performance bond with zero retainage or 2% retainage. Since the 102% performance bond cost the same as a 100% bond, all contractors have chosen the 102% bond option. They were tallied as a zero retainage state.
Washington - They have 5% retainage.
Discussions on Problems
Alaska and Colorado - Primes complain that they are having a hard time getting subs to return at the end of a project.
Montana and West Virginia - They are having problems when they find overpayments in the final estimate and they have to get money back from contractors.
Montana, Pennsylvania, and West Virginia - They are also having problems with getting final paperwork, certificates, etc., from the primes.
Oklahoma - They have seen some problems with punch list work at the end of a project but overall the have not seen any detrimental effect as a result of zero retainage.
Many states that have had for many years "retainage" bonds or zero retainage with some form of bond responded that they have had no problems.
Most states only recently made changes to retainage requirements. They stated that the projects that incorporate the retainage changes have not been completed yet and it may be too early to determine if there has been any detrimental effect.