Rick L. Stacey and Chad Nicholson – June 23, 2014
Virtually everyone involved in the construction industry is familiar with the term “retainage.” However, very few folks within this industry are aware that there are certain rules governing retainage that are dictated by Idaho law.
On most construction projects general contractors, subcontractors, and suppliers are paid progress payments for the work they performed or the materials they supplied in the construction of the project during the previous month. “Retainage” is the percentage of each progress payment earned by a general contractor, subcontractor or supplier that can be withheld or retained until the construction project is fully completed. On a typical project, the owner withholds a certain percentage of retainage from its general contractor’s progress payments. The general contractor withholds the same percentage of retainage from its subcontractors’ progress payments. And, the subcontractors withhold the same percentage of retainage from certain suppliers’ invoices. The percentage of retainage that is withheld is defined by the terms of the agreement between the parties. However, the percentage retained cannot exceed the maximum amount allowed by law.
The purpose of retainage is essentially twofold. First, retainage creates a strong incentive for contractors, subcontractors and suppliers to stay on the job and to finish its respective work on time. Second, retainage creates a source of funds to correct any defects or deficiencies in the work, particularly as the project nears completion.
Chad Nicholson
As a general rule, Idaho law allows the owner of a construction project, either public or private, to withhold up to 5 percent of each application for payment. Likewise, a general contractor may withhold the same percentage from each of its subcontractors’ pay applications. Regardless of whether it is withheld by an owner or a general contractor, the total amount of retainage cannot exceed 5 percent of the contract price. However, on privately funded projects, these limits do not apply and additional amounts may be withheld if the general contractor/subcontractor has been asked to provide a performance bond and fails to do so.
Idaho law further requires payment of all withheld retainage upon project completion. Upon substantial completion of privately funded projects, the amount of retainage withheld must be reduced to no more than 150 percent of the value of the incomplete work. Moreover, the remainder of the retainage must be paid within 35 days of the date of final completion unless there is a dispute regarding the amounts owed or whether the work was properly performed. Even in the event of a dispute, the amount of retainage withheld by an owner or general contractor cannot exceed 150 percent of the value of the disputed issue.
General contractors are required to pay subcontractors retainage within 10 days of receiving payment of these amounts from the owner. Owners may direct payment of retainage to certain subcontractors while requiring retainage amounts to be withheld from others. This usually occurs only if there is a dispute with a particular subcontractor’s work or a concern that a certain subcontractor has not made payments to some of its suppliers. General contractors may also withhold up to 150 percent of the value of any disputed work performed by its subcontractors.
In contrast to privately funded projects, general contractors on public works projects must be paid retainage within 30 days of the work being accepted as complete. Moreover, subcontractors are must be paid their retainage within 30 days of the completion of their subcontract work. Contractors are entitled to 12 percent interest on any retainage withheld more than 30 days after the work was accepted as complete unless the contract between the parties provides otherwise.
Idaho law is silent with respect to the amount of retainage that may be withheld from material suppliers on privately and publicly funded construction projects. As such, the rules governing the retention amounts that may be withheld from suppliers are dictated by the terms of any agreement between the parties.
The amounts and rules governing the retainage that owners, general contractors and subcontractors are entitled to withhold differ from state to state. Washington, for example, does not have statutes governing private work contract retainage but limits retainage in public works contracts to 5 percent.
Oregon limits retainage to 5 percent on public and private work contracts yet interest on withheld amounts accrues at different rates for public and private projects.
Montana limits retainage to 5 percent and requires payment of retainage on final acceptance of each portion of the work.
North Dakota permits retainage of up to 10 percent on privately funded projects but requires payment of all said any retainage once the project is 50 percent complete.
Utah requires that any retainage be placed in an interest-bearing account.
All owners, developers, general contractors and subcontractors should verify that the retainage provisions within their construction agreements comply with Idaho law. Moreover, because the laws governing retainage vary so greatly from state to state, contractors working outside of Idaho should have legal counsel review these agreements to verify that the terms comply with retainage laws of said state.
via Construction retainage requirements under Idaho law | Idaho Business Review.