Illinois Retainage Overview

Retainage serves two general purposes: (1) To provide an incentive to the contractor or subcontractor to complete the project; and (2) To give the owner some protection against problems like liens, contractual defaults, delays, and more.  In most states, laws exist to regulate how the parties use the retainage concept, mostly protecting some parties against abuse of the tool from others. The following are resources, legal information, and frequently asked questions about Illinois’ retainage requirements. The Illinois retainage statutes are reproduced below on this page.

Illinois Retainage for Private Projects FAQs

Illinois Retainage FAQs

Does Illinois limit the amount of retainage that can be withheld from a contractor?

Illinois state law does not provide a retainage statute for private projects.

How long can a party withhold retainage in Illinois?

Illinois state law does not provide a retainage statute for private projects.

Does Illinois require retained funds be deposited in a special account? Can securities be substituted for retainage?

Illinois state law does not provide a retainage statute for private projects.

How can I make a claim to recover retainage in Illinois?

Illinois state law does not provide a retainage statute for private projects.

Is there a specific notice required to recover retainage in Illinois?

Illinois state law does not provide a retainage statute for private projects.

Illinois Retainage for Public Projects FAQ

Illinois Retainage FAQs

Does Illinois limit the amount of retainage that can be withheld from a contractor?

The retainage rate is set at 10% of each pay estimate.  After 50% of the work is completed, retainage is limited to 5% (if work is determined satisfactory). The agent may retain 10% of all estimates as a guarantee for complete performance of the contract.

How long can a party withhold retainage in Illinois?

No general or limit set forth by statute for most projects. Highway projects do discuss retainage, but the particular retainage amount is not specified.

Does Illinois require retained funds be deposited in a special account? Can securities be substituted for retainage?

Retainage for highway projects may be deposited under a trust agreement with an Illinois financial institution at the request of the contractor and with the approval of the Department.

How can I make a claim to recover retainage in Illinois?

This is not specified in the Illinois retainage statute for public projects.

Is there a specific notice required to recover retainage in Illinois?

This is not specified in the Illinois retainage statute for public projects.

Illinois Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Illinois’ retainage laws, the rules and regulations related to the amount and timing of allowable retained payments, is important to know your rights and responsibilities as a party on a construction project. Illinois’ specific laws can be found in 605 ILCS 5/4-103, 4-104:

Retainage Statute on Private Projects

N/A

Illinois state law does not provide a retainage statute for private projects.

Retainage Statute on Public Projects

605 ILCS 5/4-103: Letting Contracts for Construction of Highways; Partial Payments; Trust Agreements

Any contracts that may be entered into for the construction of highways shall be let after due public advertisement to the lowest responsible bidder, or bidders, upon terms and conditions to be fixed by the Department, and the Department shall also require the successful bidder, or bidders, to furnish good and sufficient bonds to insure proper and prompt completion of such work in accordance with the provisions of such contracts.

Partial payments may be made for the work as it progresses provided that the Department retains an amount as required by the Standard Specifications for Road and Bridge construction.

At the request of the contractor and with the approval of the Department the retainage of the contract may be deposited under a trust agreement with an Illinois financial institution, whose deposits are insured by an agency or instrumentality of the federal government, of the contractor’s choice and subject to the approval of the Department.

The contractor shall receive any interest thereon.

Pursuant to application by the contractor, a trust agreement by the financial institution and the Department shall contain as a minimum, the following provisions:

a. The amount to be deposited subject to the trust;

b. The terms and conditions of payment in case of default of the contractor;

c. The termination of the trust agreement upon completion of the contract.

The contractor shall be responsible for obtaining the written consent of the financial institution trustee, and any costs or service fees shall be borne by the contractor.

The trust agreement may, at the discretion of the Department and upon request of the contractor, become operative at the time of the first partial payment in accordance with existing statutes and Department procedures.

The provisions of this Section shall apply to all contracts in effect on and after the effective date of this amendatory Act of 1981.

605 ILCS 5/4-104: Subcontractors' Trust Agreements

Subcontractors’ trust agreements. This Section applies to subcontractors’ retainage amounts expected to be equal to or greater than $20,000. Upon the contractor’s receipt of the first partial or progress payment from the Department, at the request of the subcontractor and with the approval of the contractor, the retainage of the subcontract shall be deposited under a trust agreement with an Illinois financial institution, whose deposits are insured by an agency or instrumentality of the federal government, of the subcontractor’s choice and subject to the approval of the contractor. The subcontractor shall receive any interest on the amount deposited.

Upon application by the subcontractor, a trust agreement by the financial institution and the contractor must contain, at a minimum, the following provisions:
(1) The amount to be deposited subject to the trust.
(2) The terms and conditions of payment in case of default of the subcontractor.
(3) The termination of the trust agreement upon completion of the subcontract.

The subcontractor is responsible for obtaining the written consent of the financial institution trustee. Any costs or service fees must be borne by the subcontractor. The trust agreement may, at the discretion of the contractor and upon request of the subcontractor, become operative at the time of the first partial payment in accordance with existing statutes and Department procedures. Subcontractors’ trust agreements are voluntary and supersede any prohibition regarding retainage that may be adopted by any transportation agency.

This Section applies to all subcontracts in effect on and after the effective date of this amendatory Act of the 92nd General Assembly.