Retainage is an incredibly common inclusion in most construction contracts. Given the inherent risk of abuse associated with retainage practices, many states regulate the amount and timing for the release of retainage. Florida regulates retainage on public construction projects through the prompt payment provisions. However, a recent Florida bill regarding the amount of retainage has made its way to the governor’s desk. If signed, it will significantly reduce the percentage that public entities and contractors can withhold on public works projects.
Florida’s current retainage requirements
Retainage is a certain percentage of the total contract price that can be withheld by the paying party. This is meant to provide contractors with an incentive to complete performance under the contract. While Florida regulates retainage only on public construction projects, private contracts can agree to any retainage provisions they choose to include.
Retainage on public projects in Florida is governed by Florida Statute §218.735.
Under the current scheme, the maximum amount of retainage allowed on a Florida public works project is 10%. However, once the project reaches 50% completion, the amount withheld must be reduced to 5%. In addition to that, the contractor can request that half of the retainage withheld up to that point be released. Final retainage must be released, the public entity must pay all withheld retainage amounts within 30 days of substantial completion, or 60 days if the project valued over $10M.
Ultimate Guide to Retainage in the Construction Industry
Proposed changes to public project retainage practices
The bill in question is Florida House Bill 101. It is currently being considered by Florida Governor Ron DeSantis. If signed into law, these rules will go into effect on October 1, 2020. They will apply to all public construction projects worth over $200K, with the exception of any FDOT contract.
Under the new rules, the maximum retainage rate that can be withheld is reduced to a flat 5% of the contract price. This rate applies to the whole contract, and is not required to be reduced at the mid-way point (as it currently is).
To sum up, the overall amount of money that can be withheld will be reduced. BUT the reduction at 50% completion is no longer required. Furthermore, the right to request half the retainage withheld at the halfway point will no longer be available.
Keep in mind, that there is no prohibition on withholding less, or agreeing to a reduction schedule within the contract terms. This just sets the maximum amount that can be withheld.
How the retainage bill would affect Florida contractors
The biggest issue that most contractors have with retainage is cash flow. By reducing the percentage withheld from progress payments, they will have more working capital to finish the project. This is good news for those working on public projects in the state of Florida. Especially since subcontractors, as a recent study shows, are the ones most impacted. This is particularly true when project delays occur.
Still, contractors need to read their contract terms closely. There are other ways around retainage requirements. We recently saw a case out of Tennessee where the GC used closeout work line items as a loophole to charge retainage.
We’ll keep you posted on the progress of this bill.