Florida limits retainage on public projects to 5%

Dive Brief:

After a 40-0 vote, Florida lawmakers have passed a bill that will limit the amount of retainage that can be withheld from contractor payments on state and local publicly funded projects to 5%. If Florida Gov. Ron DeSantis signs the legislation, the new law will go into effect Oct. 1, 2020.
Currently, contractors working on public projects have 10% retainage withheld from their payments until 50% of the project is complete. Then, the retainage rate drops to 5%. In addition to limiting how much retainage public entities are allowed to withhold, the new law will also require general contractors to limit retainage on subcontractor payments to 5% as well.
The new regulation will not apply to projects valued at $200,000 or less; Florida DOT projects approved under Florida Statutes Ch. 337; and projects entered into, pending approval or advertised by a government entity on or before Oct. 1, 2020. F.S. Ch. 337 allows the FDOT to withhold a maximum of 10% retainage if the contractor fails to start a project in a timely manner or falls behind schedule on a project with flexible start and completion times.

Dive Insight:

Retainage is the portion of the contract price that is withheld until work is substantially complete. The state of Florida established the current rate of retainage in 2005 despite an Office of Program Policy Analysis and Governmental Accountability study that found subcontractors were at risk of "waiting for an unreasonable amount of time to receive payment" when jobsite delays unrelated to the subcontractor's work occurred.

For instance, in an extreme scenario, an earthwork subcontractor could complete its work early in the project schedule, but the concrete phase of the work is held up for reasons unrelated to the actions of the earthwork subcontractor. The earthwork subcontractor might have to wait until the project is 50% complete to receive 5% of retainage withheld on its contract.

There is nothing in the current or new law that prevents a public entity in Florida from holding retainage at a lower rate and including a customized retainage release schedule in contracts or subcontracts. So there is nothing in the regulation to prevent early-work contractors from negotiating the accelerated payment of retainage.

The owner must pay retainage and any final payments within 30 days of substantial completion, for projects up to $10 million, and within 60 days of substantial completion for those valued at more than $10 million.

Illinois changed its laws in August of last year to cap retainage at 10% on most private projects, with a reduction to 5% once a contractor completes 50% of its contract scope of work. This is similar to the Illinois retainage laws governing public projects.

New Mexico prohibits retainage on public and private projects, but, according to the American Subcontractors Association's "Retainage Laws in the 50 States 2018," some owners and contractors in that state have changed their construction agreements to include a line item of 5% to 10% of the contract amount for closeout work, in essence, finding another way to withhold the equivalent of retainage.