Although controversial at best, retainage is something that contractors and vendors need to prepare themselves for when accepting a new project. Florida’s retainage laws only regulates the practice on public works projects, leaving private projects to be governed by their contract terms. As of October 1, 2020, construction companies should be aware of Florida’s new retainage laws applicable to both state and local government public works projects.
Florida’s previous retainage laws
Flashback to 2005: This is when the Florida Legislature enacted the statutes regulating retainage on public works projects. Under these statutes, the amount of retainage that can be withheld was capped at 10%. Once the project reached 50% completion, the rate of retainage would drop to 5% (pending any performance issues).
In addition to the reduction, after 50% completion was reached, the contractor can also submit a request for the release of half of the retainage withheld. This has been the law regarding retainage on public works projects in Florida for the last 15 years.
However, in August of 2019, a new retainage bill was introduced to (and passed by) the House of Representatives. On September 18, 2020, the bill was signed into law by Gov. Ron DeSantis.
2020 changes to Florida retainage
The new changes are effective on October 1, 2020. This means that any public works project that is advertised to bid after October 1st will be subject to these new retainage provisions.
Let’s do a quick recap of how these new retainage laws apply to Florida public works projects.
Note: these new regulations do not apply to Florida Department of Transportation construction contracts under Fla. Stat. §337.141.
Maximum Retainage Reduced to 5%
The most significant change is the reduction in the maximum amount of retainage allowed to be withheld.
For state and local government projects valued at over $200,000, the maximum amount of retainage that can be withheld is now just 5% of each progress payment.
This is good news for the construction industry in Florida — particularly subcontractors — since retainage puts a disproportionate cash flow burden on sub-tier parties. The reduction in retainage gives construction businesses more financial breathing room throughout the duration of the project.
This law change could also lead to increased competition for public projects, as smaller companies may be more financially confident that they can sustain the costs of the project now that less retention is withheld.
No reduction in retainage at 50% completion rule
As mentioned above, under the old regulations, once the project is 50% complete, the public entity and contractors are required to reduce the retainage from 10% to 5% (barring any issues with performance).
This 50% milestone has now been eliminated. Under the new changes, the 5% maximum of retainage is applied to the entire lifespan of the project. This includes those municipal projects where the population is less than 25K and county projects where the population is less than 100K.
However, just because the reduction is no longer required by statute doesn’t mean that the contract can’t provide for the incremental reduction in the amount of retainage withheld over the course of the project.
No more contractor request for early release of retainage
Another portion of the statute that has been completely eliminated is the ability of a contractor to request the public entity to release up to half of retainage withheld once the project reaches 50% completion.
While the statute providing the ability to request the release of some retainage at a certain point is gone, the change doesn’t mean it’s not allowed.
The contract can still include the ability to request some or all of the retainage to be released at any point in time during the project.
As far as release of retainage upon completion of the project, the Florida prompt payment rules remain the same. For contracts valued at less than $10M, retainage should be released within 30 calendar days of substantial completion.
On projects estimated to cost over $10M, retainage should be released within the same 30-day timeframe, but can be extended by the contract to a maximum of 60 days.
For more on retainage, see our Ultimate Guide to Retainage in the Construction Industry