Michigan 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 Michigan retainage requirements. The Michigan retainage statutes are reproduced below on this page.

Michigan Retainage for Private Projects FAQs

Michigan Retainage FAQs

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

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

How long can a party withhold retainage in Michigan?

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

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

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

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

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

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

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

Michigan Retainage for Public Projects FAQ

Michigan Retainage FAQs

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

Retainage must not exceed 10%. Upon 50% completion of the project, the percentage may be reduced if progress is satisfactory. If performance is acceptable, the public entity may not retain more than 10% of the value of the work past the 50% level.

How long can a party withhold retainage in Michigan?

At any time after 94% of work under the contract is completed, the public agency shall release the retainage plus interest to the original contractor.

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

Retainage is to be placed in an interest bearing account (unless the public entity is to pay with proceeds from a specific grant which has not yet been disbursed) and paid to original contractor as part of the final payment.

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

The public agency will only release funds at the request of the original contractor.

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

The original contractor must provide the public agency with an irrevocable letter of credit in the amount of the retainage plus interest issued by a bank authorized to do business in Michigan.

Michigan Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Michigan’s 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. Michigan’s specific laws can be found in: Mich. Comp. Laws §125.1563(2)(a), §125.1563(2)(b) and § 125.1563(3), and are reproduced below.

Retainage Statute on Private Projects

N/A.

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

Retainage Statute on Public Projects

§125.1563(2)(a):

Sec. 3. (1) To assure proper performance of a construction contract by the contractor, a public agency may retain a portion of each progress payment otherwise due as provided in this section.

(2)  The retainage shall be limited to the following:

(a)  Not more than 10% of the dollar value of all work in place until work is 50% in place.

§125.1563(2)(b):

Sec. 3. (1) To assure proper performance of a construction contract by the contractor, a public agency may retain a portion of each progress payment otherwise due as provided in this section.

(2)  The retainage shall be limited to the following:

(b)  After the work is 50% in place, additional retainage shall not be withheld unless the public agency determines that the contractor is not making satisfactory progress, or for other specific cause relating to the contractor’s performance under the contract. If the public agency so determines, the public agency may retain not more than 10% of the dollar value of work more than 50% in place.

§ 125.1563(3):

(3)  The retained funds shall not exceed the pro rata share of the public agency’s matching requirement under the construction contract and shall not be commingled with other funds of the public agency and shall be deposited in an interest bearing account in a regulated financial institution in this state wherein all such retained funds are kept by the public agency which shall account for both retainage and interest on each construction contract separately. A public agency is not required to deposit retained funds in an interest bearing account if the retained funds are to be provided under a state or federal grant and the retained funds have not been paid to the public agency.