The practice of withholding retainage is a controversial topic. Owners want to incentivize the proper completion of the contract, while contractors and material suppliers are hungry for consistent cash flow. Many states have imposed regulations to govern this practice on construction projects, and Washington is no different. However, Washington state offers some unique solutions to subcontractors looking to get their hands on the money they’ve earned. Let’s take a look at the specific requirements under the Washington retainage laws.
Washington retainage laws overview
The Washington retainage laws are found in Wash. Rev. Code §§60.28.011 and 39.08.010. These provisions only cover public works projects, which are any contracts for work, construction, alteration, repair, or improvement other than the ordinary maintenance executed at the cost of the state or of any municipality. On the other hand, retainage on private projects within the state of Washington is unregulated.
Amount of retainage
The maximum amount of retainage allowed to be withheld on a public works project is 5% of the contract amount. This goes for contracts between the public entity and the prime contractor, as well as any other subcontract under the same project. These amounts are required for the maintenance of a trust fund, which is designed to pay any claims that arise under the contract.
There is one exception to this limit. If the contract is for $150,000 or less, then the retainage rate withheld can be more. The public entity and the general contractor, contractor, or construction manager can agree to different terms. They can decide to forgo the bond requirements, then the contract can provide for 10% retainage withheld.
The contractor has three different options when it comes to the retainage funds. The withheld payments can either be held by the public body themselves, deposited into an interest-bearing account, or placed in escrow.
The prime contractor may choose to submit a bond for a portion or all of the retainage amount. If the public body accepts the substitution of a bond, the contractor must accept similar bonds from their subcontractors.
Release of retainage
After the completion of all the contract work, the contractor can submit a request for the full release of retainage withheld. Once the request is received, the public agency then has 60 days to release the funds. Once a prime contractor receives retainage funds they, in turn, have 10 days to pass on the proportion of retainage withheld from any subcontracts.
Releasing retainage before completion
The ultimate problem with subcontractors and retainage is waiting until completion of the entire project in order to get paid. Particularly those that perform their work in the preliminary stages. Think about it, someone called in to do foundation work would have to wait until the project is completely closed out to get the remaining 5% of the contract price. In an industry with razor-thin margins, this can cause all sorts of problems. Thankfully, as mentioned above, the Washington retainage laws are very favorable to subcontractors in regards to this problem. Here’s where the Washington retainage laws get particularly interesting.
Completion before the halfway mark
If the work under a subcontract is performed completely, and satisfactorily within half the time provided in the general contract, the subcontractor can request retainage directly from the public entity. At their discretion, they can accept completion of the subcontract. The public entity will then provide notice of final acceptance to the GC and are required to release the retained funds within 45 days.
Compelling the GC to post a retainage bond
After the changes imposed in 2017, subcontractors have the ability to receive retainage earlier by posting a retention bond. A subcontractor on a project can compel a GC to submit a bond to the public entity relating to the sub’s portion of retainage.
To do so, the subcontractor must, not only post a bond with the GC but also pay their portion of the bond premium that the GC will post with the public entity. Once a request is submitted to the general contractor by the subcontractor, the GC is required to provide the bond within 30 days. However, the statute provides that the GC can deny the sub if; (1) the sub refuses to pay their portion of the bond premium, (2) the sub refuses to provide the GC with a retainage bond, or (3) the bond isn’t commercially available.
Retainage can be a pain, but it’s commonplace on almost every construction project. Given the inherent risk of abuse involved with retainage practices, there must be some sort of regulation. Thankfully, Washington retainage laws on public works contracts provide many options for subcontractors trying to collect retained payments early; thereby shifting leverage to the hands of the subs to ensure they are paid the full amount they’ve earned.
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