Retainage: The mere mention of this practice can cause headaches for subcontractors and suppliers on any given construction project. It’s supposed to protect owners by providing an incentive to finish the project successfully. But cash flow is of the utmost importance, not to mention the potential for this practice to be abused. This can result in some serious problems for lower-tier project participants.
Knowledge is power, the more contractors understand about the laws governing retainage, the better they can protect themselves. Let’s take a deep dive on the rules and requirements imposed by the Georgia retainage laws.
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Georgia retainage laws overview
The state of Georgia has two separate statutes that regulate retainage on public and private projects. The retainage practices on public jobs are much more extensive than the laws governing private jobs within the state. While retainage is heavily regulated on public projects, private contracts are relatively free to agree to their own terms; subject to the prompt payment laws of Georgia.
Georgia Retainage on public projects
The Georgia retainage laws governing public works projects is found under GA Code §13-10-80. These rules apply to almost every type of public construction project in Georgia. The only exceptions being projects contracted by the Department of Transportation or contracts whose value or duration is less than $150,000 or 45 days. Any other construction project funded by a Georgia state or local government is subject to these provisions.
Amount allowed to be withheld
For all public projects, the maximum amount of retainage that is allowed to be withheld is 10%. However, this could change when the entire contract value has reached the 50% completion mark. The 50% mark includes any change orders or additional work. At this point, the public entity may decide to stop withholding retention from any future progress payments. This will happen, only if the public entity deems the work satisfactory.
If this isn’t the case, the public entity can resume withholding retainage. Again, this will be limited to 10%. The entity may only do so if the work is unsatisfactory or the contractor has fallen behind schedule. If the public entity is withholding retention, the prime contractor may withhold retainage from their subs and suppliers. This also applies to contracts between subs and sub-subcontractors. The rate withheld cannot be any more than what the entity is withholding from the prime.
Release of retainage
As mentioned above, if once the contract reaches 50% completion, the public entity may stop withholding retainage payment. If there are still outstanding retainage payments when the project is nearing closeout, then substantial completion of the work is the date that you’ll need to keep in mind. Once the prime contractor submits their invoice for final payment upon substantial completion, the public entity must pay the rest of retainage within 30 days of receipt.
If at the time of completion, there are any minor items of work that is still unfinished, the owner may withhold up to 2 times (200%) of the value of each item until the work is completed. Yet, once the retainage payments are ultimately received by the prime contractor, the proportion of retainage applicable shall be disbursed to subs and suppliers within 10 days.
Georgia Retainage on private projects
There is very little statutory language covering retention on private projects. For the most part, Georgia allows owners, contractors, and subs to agree to their own terms. The only statute that refers to retention on private projects is included in the GA Prompt Payment Act; specifically GA Code §13-11-5.
Amount allowed to be withheld
The only mention of retainage for private projects states that owners, contractors, or subs may withhold a reasonable amount for retainage. That’s not much to go on. However, the typical amount of retainage withheld on projects averages out to around 5-10%.
Retainage can be withheld by contractors and subs as well, as long as the rate doesn’t exceed the retainage rate withheld by the original contract. (i.e. the agreement between the property owner and the general contractor)
Release of retainage
The time limits for release of retainage is either governed by the construction contract terms themselves. But, if there is no specific clause concerning these payments, then the default prompt payment rules apply. Meaning that the owner should release all funds within 15 days of receipt of the contractor invoice. Once received, the contractor should pass payments through to their subs and suppliers within 10 days.
There are certain grounds that allow for the withholding of retainage longer. These include things such as disputed work, failure to make timely payments, third party claims, and others listed in the Georgia prompt payment provisions.
Penalties for non-payment of retainage
The Georgia retainage laws for both public and private projects don’t provide any specific penalties or remedies for nonpayment of retainage. Fortunately, the Georgia prompt payment laws apply to both public and private projects and treat retention payments like any other payment.
Therefore, interest penalties can accrue on late payment of retainage at a rate of 1%. However, the contractor will not be entitled to interest unless, at the time payment was requested, the paying party was notified of the interest provisions under the prompt pay statutes. Best practice, this language should be added to every pay application. Here’s a link to that provision
If all else fails, it may be time to consider filing a bond or lien claim for unpaid retention. If this seems like a lot to take in, you’re not alone. Check out this recent question submitted by a Georgia contractor to our Ask an Expert Center:
Retainage will always be a point of contention. However, it’s an unavoidable reality in the construction industry, and there is too much potential for abuse. As a contractor working in the state of Georgia, it’s important to know not only your rights to payment but the rights of those you hire as well. At the end of the day, everyone deserves to be paid what they’ve earned.