On construction projects, the practice of withholding retainage is controversial. Many states have begun to pass legislation regulating the retainage practices on both public and private construction projects. In the state of Colorado, there has been a push to reform the retainage practices on private construction projects through House Bill 1046. However, the bill went through a recent vote that postponed the enactment indefinitely.
Colorado retainage laws
Under the current laws, there are regulations concerning retainage withheld on Colorado public works projects. But as of yet, there is still no guidance or regulation on retainage practices in the private sector. Meaning that retainage is left to the parties to negotiate in their construction contracts.
In January, CO House Bill 20-1046 was introduced as a movement towards private retention reform in Colorado. However, in mid-February, the Colorado House Business Affairs & Labor Committee voted to postpone the bill indefinitely.
The Ultimate Guide to Retainage in the Construction Industry
Proposed private retainage bill
Under this proposed legislation, Colorado would cap retainage on private projects at 5% of the total contract price. The new retainage requirements would apply to all private construction projects of at least $150,000 or more. What these regulations would not apply to are public projects, or contracts for family dwellings of 4 units or less.
Retainage cap & payments
In addition to the retainage cap, the bill also provides timing for payments. The property owner would be required to make partial payments to the general contractor (prime contractor) at the end of each month or as soon as practicably possible at the end of each month. Once the contractor receives payment they must, in turn, pay their subcontractors and suppliers within 30 calendar days of receipt of payment.
The same 30-day turnover period applies to payments from subs to any of their sub-subcontractors, suppliers, and laborers. As for the retained funds, the property owner would need to pay the withheld percentage within 60 days after satisfactory completion of the contract. Again, the 30-day payment timeline would apply to the release of retainage as well.
Penalties
If a party improperly withholds payment and/or retainage, an interest penalty of 1.5% per month will begin to accrue until full payment has been made. In addition to interest penalties, in a lawsuit to enforce these provisions, the prevailing party would be awarded reasonable attorney fees and court costs.
Future of Colorado private retainage
Supporters of the bill were discouraged that the bill didn’t pass, but remain optimistic. Scott Deering, the Vice-Chair of the Colorado Contractors Coalition, said in an announcement: “Though we hoped to celebrate the passage of HB20-1046 this year, we know that rarely is a bill passed in the first year it is introduced. We accomplished a great deal this session including unprecedented industry support for this effort. Members of the CO legislature and stakeholders have committed to continue working with is on this very important issue.”
We will continue to keep an eye on the progress of this bill, and keep you updated on any changes.