Arkansas Retainage Guide and FAQs

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Arkansas Retainage FAQs

Arkansas Retainage Overview

Arkansas Retainage Requirements


  • Private Jobs
  • Public Jobs
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Retainage No Limit Icon
No Retainage Limits

Not Regulated by State Law


Payment Period Not Regulated Icon
Pay Period

Not Regulated by State Law


NO
PROCESS
There's No Process to Recover

N/A


No Escrow Icon
Not Held In Escrow

In Arkansas, contractors and owners do not need to hold retainage funds in a separate escrow account.

Retainage 5% Icon
5 Percent

Retainage is capped at no more than 5%. Upon 50% completion of the project, no additional withholding is allowed.


Payment Period 30 Days Icon
30 Day Pay Period

All sums withheld by the public agency shall be paid to the contractor within thirty (30) days after the construction contract has been completed. If the contract allows for phased work in which completion may occur via partial occupancy, retainage must be released within 30 days of the completion of that phase.


NO
PROCESS
There's No Process to Recover

Not Specified

Retainage, also called “retention,” is an amount of money “held back” from a contractor or subcontractor during the course of a construction project. In general, retainage serves two main purposes:

  • To provide an incentive to the contractor or subcontractor to complete the project; &
  • 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 answers to frequently asked questions about Arkansas’ retainage requirements.

Arkansas’ retainage limits and deadlines

Arkansas’ retainage statutes only apply to public works projects. On all other projects, retainage will be governed by the terms of the contract.

The amount of retainage that can be withheld on public projects in Arkansas is capped at no more than 5% of each progress payment. However, upon 50% completion, if the contractor is making satisfactory progress, the public entity or contractor (as applicable) can decide to withhold no more retainage from the remaining progress payments.

The public entity is required to release any withheld retainage to the prime contractor within 30 days of completion and acceptance of the project. As far as the release of retainage to subcontractors and suppliers, there is no specific deadline, nor are payments to subcontractors governed by Arkansas’ prompt payment laws. Therefore, the timing of the release of retainage down the payment chain will be governed by the terms of the subcontract.

Arkansas Retainage Frequently Asked Questions

Arkansas Retainage Private Projects FAQs

Does Arkansas limit the amount of retainage that can be withheld from a contractor on private projects?

Arkansas does not limit the amount of retainage that may be withheld on private construction projects. Therefore, the amount of retainage and the timing of its release will be governed by the terms of the contract or subcontract between the parties.

Arkansas Retainage Public Projects FAQs

What types of public projects are governed by Arkansas’ retainage laws?

The statutes governing retainage in Arkansas apply to all public construction projects within the state, with the exception of contracts entered into by the AR State Highway Commission for the construction or maintenance of public highways, roads, or streets.

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

Yes, the amount of retainage that may be withheld on public works projects in Arkansas is capped at no more than 5% of each progress payment. This does not include the costs of materials or equipment stored on site.

However, upon reaching the 50% completion mark, if the contractor or subcontractor is making satisfactory progress on the project. The entity or contractor may not withhold retainage on the remaining progress payments.

How long can a party withhold retainage in Arkansas?

The public entity is required to release any withheld retainage no later than 30 days after completion and acceptance of the project. If, however, the contract allows for phased work in which partial occupancy may occur, retained funds may be partially released within 30 days of completion of that phased portion of the work.

There is no provision regulating the release of retainage to subs and suppliers. Also, payments to subs and suppliers are not regulated by the Arkansas public prompt payment laws. Thus, the release of payments down the contracting chain will be governed by the terms of the contract between the parties.

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

There is no specific requirement to deposit funds withheld in any escrow or other interest-bearing account.

Also, the Arkansas retainage laws specifically provide for the ability of original contractors to substitute securities in lieu of retainage.

• For more on this, see: Retention Bonds- An Alternative to Waiting for Retainage

An original contractor may substitute securities instead of retainage.

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

There are no specific notices required to secure the right to recover retainage withheld on Arkansas public projects. However, prime contractors may want to consider sending a prompt payment demand letter, and all claimants may want to consider sending a Notice of Intent to Make a Bond Claim.

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

The Arkansas retainage statutes governing public projects don’t specify any particular method to make a claim for unpaid retainage. However, retainage may be included in a public payment bond claim, claims under Arkansas’ prompt payment laws, or claims under the contract, such as breach of contract claims.

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Arkansas Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Arkansas’ retainage laws, the rules, and regulations related to the amount and timing of allowable retained payments are important to know your rights and responsibilities as a party on a construction project. Arkansas’ specific laws can be found in: Ark. Code Ann. § 22-9-501, and §22-9-601 et seq. Updated as of June 2021.

Retainage Statute on Private Projects

N/A

Arkansas does not provide a retainage statue for private projects.

Retainage Statute on Public Projects

§ 22-9-501. Substitution of securities for retained payments - Contracts generally

(a) Under any contract made or awarded by the state or by any public department or official thereof, including the construction, improvement, or repair of any and all ways, roads, or bridges with appurtenances which, by law, are under the supervision of the State of Arkansas or any political subdivision, the contractor may withdraw the whole, or any portion thereof, of the amount retained for payments to the contractor pursuant to the terms of the contract upon depositing with the Treasurer of State, except as provided in § 22-9-502, direct obligations of or obligations fully guaranteed by the federal government or any agency or department thereof, obligations of the State of Arkansas, obligations of any public housing authority, or certificates of deposit from federal or state banks or savings and loan associations.

(b) No amount shall be withdrawn in excess of the market value of the securities at the time of deposit or at the time of withdrawal.

§ 22-9-601. Definitions

As used in this subchapter:

(1) “Construction contract” means a contract between a public agency and a prime contractor which obligates the prime contractor to construct, repair, replace, or maintain improvements for the public agency;

(2) “Cost of the project” means the sum the public agency originally agrees to pay the prime contractor for performance of the contract plus any other sums the public agency agrees to pay the prime contractor for extra-cost items included in the construction project which were not included in the original contract;

(3) “Prime contractor” means the party which, individually or in concert with other prime contractors, establishes a direct contractual relationship with the public agency obligating the prime contractor to construct improvements for the public agency. Where applicable under the law, the prime contractor shall be a contractor licensed and in compliance with Arkansas law;

(4) “Progress payments” means the monthly estimates submitted by the prime contractor to the public agency for payment of that portion of the work completed, including stored materials and equipment purchased; and

(5) “Public agency” means the State of Arkansas or any of its agencies, departments, or institutions or any political subdivision of the state, or taxing unit, and includes any nonprofit corporation or association receiving public funds in whatever form, including grants, loans, and subsidies.

§ 22-9-602. Exception

The provisions of this subchapter shall not be applicable to contracts entered into by the State Highway Commission for the construction or maintenance of public highways, roads, or streets.

§ 22-9-603. Waiver

The provisions of this subchapter shall not be applicable to contracts entered into by the State Highway Commission for the construction or maintenance of public highways, roads, or streets.

§ 22-9-604. Procedure

(a)

(1)

(A) In the case of a construction contract entered into between a public agency and a contractor who is required to furnish a performance and payment bond, the contractor shall be entitled to payment of ninety-five percent (95%) of the earned progress payments when due, with the public agency retaining five percent (5%) to assure faithful performance of the construction contract.

(B)

(i) A public agency may forego withholding retainage of the progress payments if:

(a) The construction contract is fifty-percent (50%) complete;

(b) The contractor has provided the work in a satisfactory manner; and

(c) The design professional and public agency agree with and approve of subdivisions (a)(1)(B)(i)(a) and (b) of this section.

(ii) This subdivision (a)(1)(B) does not prohibit a public agency from withholding retainage throughout the project.

(2) If the construction contract allows for phased work in which completion may occur on a partial occupancy, any retention proceeds withheld and retained under this section shall be partially released within thirty (30) days under the same conditions under this section in direct proportion to the value of the part of the capital improvement completed.

(b)

(1) In the case of a construction subcontract entered into between a contractor for a public agency and a subcontractor who is required by the contractor to furnish a performance and payment bond, the subcontractor shall be entitled to payment of ninety-five percent (95%) of the earned progress payments when due, with the contractor retaining five percent (5%) to assure faithful performance of the construction subcontract.

(2) Upon the approval of the contractor, if the subcontractor completes fifty percent (50%) of the construction subcontract the contractor shall not retain any further moneys.

(c) All sums withheld by the public agency shall be paid to the contractor within thirty (30) days after the construction contract has been completed.

(d) In the event the construction contract requires the contractor to purchase and furnish materials or equipment that will be stored on the job site or in a bonded warehouse by the contractor and used in the job as required by the construction contract, no retainage shall be withheld on that amount of the submitted progress payment pertaining to the cost of these stored materials or equipment.

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