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Wed April 03, 2013 - National Edition
A reference manual published by the American Subcontractors Association, Retainage Law in the 50 States, is helping construction subcontractors understand retainage laws where the projects they bid and work on are located.
As it applies to subcontractors, retainage is the practice of regularly holding a portion of progress payments that subcontractors earn for performing construction services.
“In many states, the withheld funds are to be held in escrow, to be paid back to the contractor or subcontractor with interest,” the guide explained. “Many states also permit contractors and/or subcontractors to substitute securities in lieu of retainage. The majority of states permit contracting agencies or owners to reduce or even eliminate the rate of retainage once a certain portion of the contract is complete.”
Each state entry in the manual reviews critical factors in retainage law for private and public work, including the retainage rate permitted under law, retainage release milestones, and any options to provide alternative securities in lieu of retainage. The manual also contains a chart summarizing the major elements of retainage law for each state.
Retainage is generally held as an assurance for the timely completion and quality of a contractor’s or subcontractor’s work. It is calculated as a percentage of the total contract price. However, the practice places a severe financial hardship on contractors and subcontractors. When contractors and subcontractors are forced to complete work without full payment, they, in essence, finance the job, making it difficult to timely pay their own creditors. In some cases, contractors and subcontractors are burdened with sizable retainage receivables long after project completion.
The ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual, which contains contributions from construction attorneys from across the country. The manual is available to ASA members as a downloadable PDF document on the ASA Web site in the “Contracts & Project Management” section located under “Advocacy & Contracts.”
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