construction site photo with Colorado legal alert tag

Retainage is a highly debated topic in the construction industry, mainly due to the potential abuse of the system — particularly when the amount withheld is not regulated by state law.

Colorado’s retainage laws currently only apply to public works projects. However, on May 11, 2021, Colorado Governor Jared Polis signed HB1167 into law, which caps the amount of retainage that can be withheld on private projects at no more than 5%.

Colorado private retainage bill signed into law

Back in March 2021, CO House Bill 1167 was introduced into legislation to regulate the amount of retainage that can be withheld on private construction projects.  Currently, Colorado only limits the amount of retainage that can be withheld on public projects over $150,000 to no more than 5%.

Now, with Governor Polis’ signature on the bill, retainage on certain Colorado private projects has been aligned with public projects and will also be limited to no more than 5%.

This is a huge step for the contractors and subs working in Colorado — and it’s been a long time in the making, as a similar bill was proposed early 2020, but was postponed indefinitely.

Bill overview

  • Title: HB1167 – Private Construction Contract Payments
  • Signed: 05/17/21 by Governor Jared Polis
  • Effective Date: 09/10/21 (subject to petition)

Applicability of retainage laws

These new retainage laws will soon apply to all private construction projects of at least $150,000, with the same price threshold for public projects.

There are, however, some exceptions to these regulations. Specifically: single-family dwellings, multifamily dwellings with no more than four family dwelling units, and contracts with public entities.

An interesting thing to note is that while this bill passed through legislation, there was a proposed amendment to have the multifamily dwellings covered to be increased to “no more than ten family dwelling units,” but this amendment ultimately failed to pass.

Learn more: Types of Construction Projects and Why They Matter

Retainage capped at 5% of each progress payment

Now to the meat of these new changes, the limit on the amount of retainage that can be withheld. Under the new legislation, a property owner, contractor, or subcontractor shall not withhold as retainage more than five percent (5%) of the price of work completed under the contract or subcontract. While this bill was passing through the legislature, another amendment was proposed to increase the amount to 8%, but this also failed to pass.

Learn more: The Ultimate Guide to Retainage in the Construction Industry

This section of the bill then wraps up by stating that any partial payments made do not constitute acceptance or approval of some or all of the work, nor do they operate as a waiver of any potential defects in the work performed.

Timing of retainage payments

The state of Colorado does not have any prompt payment provisions applicable to private projects. So, the timing of the release of retainage will be governed by the terms of the contract between the parties. However, the new retainage laws do carve out certain contract provisions that will not be “changed, overridden, or invalidated” by these new changes.

There are two specific provisions that are listed in the new legislation:

First, there are the provisions allowing the owner, contractor, or subcontractor to withhold payment or deduct from any payment otherwise due, any back charges, or other amounts authorized by the contract.

Second, any provisions relating to a condition precedent that must be satisfied before payment is due. In the simplest terms, this means a clause that makes payment due if or when they are paid. These are referred to as contingent payment clauses— i.e. pay-if-paid and pay-when-paid clauses — which are enforceable in Colorado.

See: Pay-if-Paid & Pay-when-Paid Clauses | Colorado

Lien waiver requirement

Last, the final section under the new Article 46 relates to the use of lien waivers. It states that if the contract between the parties requires a lien waiver to be executed in exchange for payment, that requirement will apply and will now be reinforced by statute.

Read more: Colorado Lien Waiver Overview & FAQs