Texas 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 Texas’ retainage requirements. The Texas retainage statutes are reproduced below on this page.

Texas Retainage for Private Projects FAQs

Texas Retainage FAQs

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

For work in which a mechanics lien may be claimed, the property owner must retain 10%.

How long can a party withhold retainage in Texas?

The time period to withhold retainage is very complicated and not well defined in Texas law. It appears that 30 days after work is completed retainage must be released.

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

This is not specified for private projects in the Texas retainage statute.

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

When claiming retainage, the claimant must give the owner notice of contractual retainage no later than the earlier of: the 30th day after the date the claimant’s agreement providing for retainage is completed, terminated, or abandoned OR the 30th day after the date the original contract is terminated or abandoned. If an owner is required to send a notice to a subcontractor and fails to send the notice, the subcontractor is not required to comply to claim retainage and may claim a lien by filing a lien affidavit.

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

On or before the 10th day of the termination or abandonment of an original contract, the owner shall give notice to each subcontractor who, before the date of termination or abandonment, has: given notice to the owner provided by this statute or sent to the owner by certified or registered mail a written request for notice of termination or abandonment.

Also, see previous question.

Texas Retainage for Public Projects FAQ

Texas Retainage FAQs

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

For most projects, no specific maximum rate is set out.  Claim for retainage in § 2253.076, however, “A claim for retainage in a notice under this subchapter is not valid for an amount greater than the amount of retainage specified in the public work contract between the payment bond beneficiary and the prime contractor or between the payment bond beneficiary and the subcontractor. A claim for retainage is never valid for an amount greater than 10 percent of the amount of that contract.”

How long can a party withhold retainage in Texas?

Statute is unclear but it appears to depend on contractual provisions. Most likely released upon completion of work under the contract.

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

For all contract in which retainage is more than 5% (excepting those under $400,000), the retainage must be placed in an interest bearing account.

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

Must submit a notice to claim retainage. Statute not clear.

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

See above.

Texas Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Texas’ 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. Texas’ specific laws can be found in: Tex. Prop. Code Ann. § 53.101, § 2252.032 and§ 2252.03; and are reproduced below.

Retainage Statute on Private Projects

§ 53.101: Retainage

(a) During the progress of work under an original contract for which a mechanic’s lien may be claimed and for 30 days after the work is completed, the owner shall retain:

(1) 10 percent of the contract price of the work to the owner; or

(2) 10 percent of the value of the work, measured by the proportion that the work done bears to the work to be done, using the contract price or, if there is no contract price, using the reasonable value of the completed work.

(b) In this section, “owner” includes the owner’s agent, trustee, or receiver.

Retainage Statute on Public Projects

§2252.032: Retainage

A governmental entity shall:

(1) deposit in an interest-bearing account the retainage of a public works contract that provides for retainage of more than five percent of the periodic contract payment; and

(2) pay the interest earned on the retainage to the prime contractor on completion of the contract.

§2252.033: Exemptions

This subchapter does not apply to:

(1) a public works contract executed before August 31, 1981;

(2) a public works contract in which the total contract price estimate at the time of execution of the contract is less than $ 400,000; or

(3) a public works contract made by the Texas Department of Transportation under Subchapter A, Chapter 223, Transportation Code.