New statute limits amount of retainage in construction contracts

A recently enacted statute limits the amount of retainage that may be withheld under certain construction contracts. “An Act Relative to Fair Retainage Payments in Private Construction” (the “Act”), codified into law as Mass. Gen. Laws Chapter 149, Section 29F, applies to contracts signed after November 6, 2014 where the original contract price is $3 million or more, but does not apply to projects containing one to four residential housing units. “Retainage” is a portion or percentage of a payment made under a construction contract that is withheld to ensure full performance of the contract. The Act prohibits retainage in excess of 5% each progress payment under the construction contract, marking a significant change from the customary industry practice of a 10% retainage. The Act also establishes a specific timeline and procedure for the release of the retainage. Developers, construction lenders and contractors will need to carefully revise their standard agreements to comply with these new requirements. Project developers and construction lenders may also need to consider alternative methods to ensure the timely completion of their projects.

Contact Frank T. Ravinal with any questions about this entry.