What is retainage? Retainage also called “retention,” is an amount of money “held back” from a contractor or subcontractor during the course of a construction project.
What are the purposes for retainage? The purposes of retainage include: (1) To provide an incentive to the contractor or subcontractor to complete the project; and (2) To give the owner some protection against problems like liens, contractual defaults, delays, etc.
What is the amount of retainage that may be withheld on a private project? The amount of retainage that may be withheld is no more than 10% of the total contract price, or reasonable value of the labor and/or materials if there is no contract price.
How do you make a claim for retainage? To make a claim for a lien on retainage, the claimant must send a Notice of Contractual Retainage no later than 30 days after the claimant’s contract is completed, terminated, or abandoned, or 30 days after the original contract is terminated or abandoned; whichever is earlier. For all original contracts entered on or after 1/1/22, under §53.052(d), a lien for retainage must be filed no later than the 15th day of the 3rd month after the month the original contract was completed, terminated, or abandoned. However, §53.103 remains; which provides the retainage lien deadline of no later than 30 days after the work is complete, or the original contract is terminated or abandoned.
Does Texas require retained funds to be deposited in a special account? There is no specific requirement to have the retained funds to be deposited in any special, interest-bearing account. nor any specific ability to substitute securities in lieu of retainage.
What about retainage on a public project? For public projects, the amount of retainage that may be withheld depends on the overall project value. For contracts valued at less than $5M, no more than 10% may be withheld as retainage. On projects valued at $5M or more, the amount of allowable retainage is only 5% of the total contract price. To make a claim for retainage on public projects, the claimant must send a Notice of Contractual Retainage no later than 90 days after the completion of the project. As for the deadline to enforce the claim, claimants should follow the payment bond enforcement deadline, which is more than 60 days after sending the notice, but no later than one year after the notice was served.
Note: The contract documents involved in a particular project may attempt to alter and/or modify the basic rules relating to retainage. As such, it is important that each party to the contract documents carefully review provisions relating to retainage to assure that they completely understand their rights and responsibilities as it relates to retainage.