Clarity needed in contractor retainage policies

With the construction trades, it’s common for contractors to withhold a payment from a subcontractor to ensure the work will be completed and satisfactorily.

Rep. Jason Rarick

However, the issues surrounding this retainage policy has brought interested parties to the table since 2011. HF2451, sponsored by Rep. Jason Rarick (R-Pine City), is a first step toward agreement. Passed by the House 130-0 on Tuesday, the bill now moves to the Senate where Sen. Dan Sparks (DFL-Austin) is the sponsor.

“This is a work in progress … there’s still more work to be done,” Rarick told the House Commerce and Regulatory Reform Committee earlier in session.

The bill would put some framework around retainage policies. It is customary for contractors to retain about 5 percent of the payment. However, according to committee testimony, up to 10 percent is becoming the practice, and this is burden to subcontractors. The bill would limit the retainer to 5 percent in situations where retainage has been agreed to; however, nothing in law would require a retainer.

The bill would also allow a contractor or subcontractor who hasn’t been paid within 10 days of an undisputed claim the right to stop work, until payment is made.