Connecticut Retainage Guide and FAQs

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Connecticut Retainage FAQs

Connecticut Retainage Overview

Connecticut Retainage Requirements


Retainage 5% Icon
5% Retainage Limit

5% of the estimated amount of payment


Payment Period 30 Days Icon
30 Day Pay Period

Owners must pay funds within 30 days of request. Contractors must pay within 30 days of receipt of funds.


YES
PROCESS
There is a Process to Recover

Yes. written notice through registered or certifed mail required.


Escrow Icon
Held In Escrow

In Connecticut, contractors and owners need to hold retainage funds in a separate escrow account.

Retainage icon
7.5 Percent

The Department of Works or State Agency projects have a maximum retainage rate of 7.5%. The Department of Transportation projects have a maximum retainage rate of 2.5%. Municipal contracts have a maximum retainage rate of 5%.


Payment Period 30 Days Icon
30 Day Pay Period

General contractors (and subcontractors) must pay subcontractors within 30 days of receiving payment.


NO
PROCESS
There's No Process to Recover

No process is specified by state statute.

Retainage serves two general purposes: (1) To provide an incentive to the contractor or subcontractor to complete the project; and (2) 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 frequently asked questions about Connecticut’s retainage requirements. The Connecticut retainage statutes are reproduced below on this page.

Connecticut retainage limits and deadlines

On private projects, the amount of retainage that can be withheld is capped at no more than 5% of each progress payment and is required to be deposited by the owner in an escrow account. Upon completion and acceptance of the project, retainage must be released by the owner within 30 days. In turn, upon receipt, retainage should be released to the party’s subs and suppliers within 30 days.

On public projects, the amount of retainage varies depending on the public entity that commissioned the work. On state projects, retainage is limited to no more than 7.5% of each progress payment. However, upon 50% completion, retainage must be reduced to no more than 5% of the remaining progress payments. On municipal government projects, the amount that can be withheld is no more than 5% of each progress payment. Lastly, on Department of Transportation projects, the maximum amount of retainage is set at 2.5%.

Connecticut Retainage Frequently Asked Questions

Connecticut Retainage Private Projects FAQs

What types of private projects are covered under Connecticut’s retainage laws?

The Connecticut retainage provisions governing private projects apply to most contracts for the construction or improvement of private property; with a few exceptions. These rules will not apply to contracts:

    • Funded or insured by the US Dept. of Housing & Urban Development
    • Valued at less than $25,000, or
    • Regarding residential properties of 4 or fewer units.
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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Levelset
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Does Connecticut limit the amount of retainage that can be withheld on private projects?

On private projects in Connecticut, the maximum amount of retainage that may be withheld is capped at no more than 5% of each progress payment.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Levelset
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How long can a party withhold retainage on private projects in Connecticut?

Retainage on the protected private projects in Connecticut must be released within 30 days of either:

• The issuance of a certificate of final completion by the owner; or

• Some equivalent of written acceptance of the project by the owner.

Retainage down the contracting chain must be released to subs and suppliers within 30 days of receipt of retainage funds.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Does Connecticut require retained funds be deposited in a special account? Can securities be substituted for retainage?

Yes, owners of private projects in Connecticut must deposit the retained funds in an escrow account established in state or national banks within the state, or savings and loan associations within the state. All the fees and expenses to maintain the account shall be paid by the owner.

Furthermore, the Connecticut statutes specifically allow the substitution of securities in lieu of retainage withheld

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

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Is there a specific notice required to recover retainage in Connecticut?

Yes, if retainage isn’t properly released by the owner or contractor, the party may send a notice of their claim by registered or certified mail within 30 days of their hiring party’s receipt of retainage payments. If payment isn’t made within 10 days after receipt of the notice, interest will accrue at a rate of 1% per month until payment is made.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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How can I make a claim to recover retainage in Connecticut?

Beyond the notice of late payment described above, there is no specified method of recovery for retainage on private projects. However, other collection tools such as filing a mechanics lien claim, claims under the Connecticut Prompt Payment Act, or pursuing claims such as breach of contract are available to recover retainage payments.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Connecticut Retainage Public Projects FAQs

What types of public projects are covered under Connecticut’s retainage laws?

The Connecticut laws regarding retainage on public projects apply to all public works projects over $100,000. However, the amount that can be withheld and procedures can vary depending on the public entity commissioning the work.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Does Connecticut limit the amount of retainage that can be withheld from a contractor?

The amount of retainage that can be withheld on public works projects in Connecticut depends on the public entity commissioning the work.

State projects

On state government projects, the amount of retainage is capped at no more than 7.5% of each progress payment until the project reaches 50% completion. Upon reaching the halfway mark, the amount withheld will be reduced to just 5% of the remaining progress payments.

Municipal government projects

On municipal government projects, no more than 5% of each progress payment may be withheld until the completion of the project.

Department of Transportation projects

The Department of Transportation projects have a maximum retainage rate of 2.5% both for payments from the public entity to an original contractor and from payments from an original contractor to subcontractors.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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How long can a party withhold retainage in Connecticut?

Generally, the public entity must release final payment, along with retainage, no later than 45 days after receipt of a properly completed claim, or receipt of goods or services; whichever is later. Once received, retainage funds should be released to subs and suppliers within 30 days of receipt.

Furthermore, on all public works projects, with the exception of DoT projects, the awarding authority is required to establish an early release program relating to periodic payments by contractors and subs.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Does Connecticut require retained funds be deposited in a special account? Can securities be substituted for retainage?

The deposit of retainage into an escrow account is not required on public projects in Connecticut. However, securities may be provided in lieu of retainage.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Is there a specific notice required to recover retainage in Connecticut?

No specific notice is required to make a claim for unpaid retainage. However, sending a notice of intent to make a prompt payment claim or notice of intent to make a bond claim is a good place to start.

Additionally, although not specifically directed at retainage. If final payment (including retainage)  is delayed, a notice of nonpayment can be sent to be entitled to interest under the prompt pay laws.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Levelset
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How can I make a claim to recover retainage in Connecticut?

Yes, claimants may make a claim for unpaid retainage against the project’s payment bond. To do so, the bond claim (if solely for retainage) must be given to the surety and the general contractor no later than 180 after the general contractor was supposed to make the retainage payment.

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Connecticut Retainage Guide & FAQs
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Connecticut Retainage Guide & FAQs
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Summary of Connecticut Retainage requirements and laws for Connecticut construction projects including free forms, FAQs, resources and more.
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Connecticut Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Connecticut’s retainage laws, the rules and regulations related to the amount and timing of allowable retained payments, is important to know your rights and responsibilities as a party on a construction project. Connecticut’s specific laws can be found in: Conn. Gen. Stat. §§ 42-158j-42-158r for private projects and §§ 49-41b(1), 49-41b(2), 49-41b(3) and 3-112a on public projects, and are reproduced below; updated as of 2021.

Retainage Statute on Private Projects

§ 42-158i. Definitions

As used in sections 42-158i to 42-158n, inclusive, unless the context otherwise requires:

(1) “Owner” means any individual, corporation, nonprofit corporation, partnership, limited partnership, limited liability company or other business entity that is the owner of record or lessee of real property upon which construction, renovation or rehabilitation is to be or is being performed pursuant to a construction contract regarding such real property.

(2) “Construction contract” or “contract” means any contract for the construction, renovation or rehabilitation in this state on or after October 1, 1999, including any improvements to real property that are associated with such construction, renovation or rehabilitation, or any subcontract for construction, renovation or rehabilitation between an owner and a contractor, or between a contractor and a subcontractor or subcontractors, or between a subcontractor and any other subcontractor. “Construction contract” or “contract” does not include (A) any public works or other building contract entered into with this state, the United States, any other state, and any municipality or other political subdivision of this state or any other state, (B) a contract or project funded or insured by the United States Department of Housing and Urban Development, (C) a contract between an owner and a contractor for an amount of twenty-five thousand dollars or less or a subcontract which results from such a contract, or (D) a contract for a building intended for residential occupancy containing four or less units.

(3) “Retainage” means a sum withheld from progress payments to the contractor or subcontractor, otherwise payable to a contractor or subcontractor by an owner conditioned on substantial or final completion of all work in accordance with the terms of a written or verbal construction contract, but does not include any sum withheld due to the contractor’s or subcontractor’s failure to comply with construction plans and specifications.

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Connecticut Retainage Guide & FAQs
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§ 42-158j. Required contract provisions re timely payment of contractors, subcontractors and suppliers. Payment requisition statement. Remedy for untimely payments. Penalties. Escrow accounts. Withholding payments due because of disputes prohibited. Progress payments. Rights of action

(a) Each construction contract shall contain the following provisions:

(1) A requirement that the owner pay any amounts due to any contractor in a direct contractual relationship with the owner, or due to any subcontractor or supplier in a direct contractual relationship with the contractor, whether for labor performed or materials furnished, not later than thirty days after the date any written request for such payment has been made to the owner by such contractor, subcontractor or supplier;

(2) a requirement that the contractor pay any amounts due any subcontractor or supplier, whether for labor performed or materials furnished, not later than twenty-five days after the date the contractor receives payment from the owner which encompasses labor performed or materials furnished by such subcontractor or supplier; and

(3) a requirement that the contractor shall include in each of its subcontracts a provision requiring each subcontractor and supplier to pay any amounts due any of its subcontractors or suppliers, whether for labor performed or materials furnished, not later than twenty-five days after the date such subcontractor or supplier receives a payment from the contractor which encompasses labor performed or materials furnished by such subcontractor or supplier.

(b) Each payment requisition submitted by a contractor or subcontractor in accordance with the requirements of subsection (a) of this section shall include a statement showing the status of all pending construction change orders, other pending change directives and approved changes to the original contract or subcontract. Such statement shall identify the pending construction change orders and other pending change directives, and shall include the date such change orders and directives were initiated, the costs associated with their performance and a description of any work completed. As used in this section, “pending construction change order” or “other pending change directive” means an authorized directive for extra work that has been issued to a contractor or a subcontractor.

(c)

(1) If payment is not made by an owner in accordance with the requirements of subdivision (1) of subsection (a) of this section or any applicable construction contract, such contractor, subcontractor or supplier shall set forth its claim against the owner through notice by registered or certified mail. All amounts due from the owner pursuant to this subsection and subdivision (1) of subsection (a) of this section shall be limited to the amount owed to the contractor by the owner for work performed under the contract at the date such notice is provided.

(2) If payment is not made by a contractor in accordance with the requirements of subdivision (2) of subsection (a) of this section or any applicable construction contract, the subcontractor or supplier shall set forth its claim against the contractor through notice by registered or certified mail.

(3) If payment is not made by a subcontractor or supplier in accordance with the provisions of subdivision (3) of subsection (a) of this section, the subcontractor or supplier to whom money is owed shall set forth its claim against the subcontractor or supplier who has failed to comply with the provisions of said subdivision (3) through notice by registered or certified mail.

(4) Ten days after the receipt of any notice specified in subdivisions (1), (2) and (3) of this subsection, the owner, contractor, subcontractor or supplier, as the case may be, shall be liable for interest on the amount due and owing at the rate of one per cent per month. Such interest shall accrue beginning on the date any such notice is received. In addition, such owner, contractor, subcontractor or supplier, upon written demand from the party providing such notice, shall be required to place funds in the amount of the claim, plus such interest of one per cent per month, in an interest-bearing escrow account in a bank in this state, provided such owner, contractor, subcontractor or supplier may refuse to place the funds in escrow on the grounds that the party making such demand has not substantially performed the work or supplied the materials according to the terms of the construction contract or that the funds so demanded are not due under the owner’s contract with the contractor. In the event that such owner, contractor, subcontractor or supplier refuses to place such funds in escrow and such owner, contractor, subcontractor or supplier is found to have unreasonably withheld payment due a party providing such notice, such owner, contractor, subcontractor or supplier shall be liable to the party making demand for payment of such funds and for reasonable attorneys’ fees plus interest on the amount due and owing at the rate of one per cent per month. In addition, any owner, contractor, subcontractor or supplier who is found to have withheld payments to a party providing such notice in bad faith shall be liable for ten per cent damages.

(d) No payment may be withheld from a subcontractor or supplier for work performed or materials furnished because of a dispute between a contractor and another contractor, subcontractor or supplier.

(e) This section shall not be construed to prohibit progress payments prior to final payment of the contract and is applicable to all subcontractors and suppliers for material or labor whether they have contracted directly with the contractor or with some other subcontractor on the work. Each owner that enters into a contract under this section and fails or neglects to make payment to a contractor for labor and materials supplied under a contract, as required pursuant to this section, shall, upon demand of any person who has not been paid by the contractor for such labor and materials supplied in the performance of the work under the contract, promptly pay the person for such labor or materials. Demand for payment shall be served on the owner and a copy of each demand shall be sent to the contractor by certified mail, return receipt requested to any address at which the owner and contractor conduct business. If the owner fails to make such payment, the person shall have a direct right of action against the owner in the superior court for the judicial district in which the project is located. The owner’s obligations for direct payments to the contractor, subcontractors or suppliers giving notice pursuant to this section shall be limited to the amount owed to the contractor by the owner for work performed under the contract at the date such notice is provided.

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§ 42-158k. Retainage limitation. Payment by owner. Time limits

No construction contract may provide for any retainage in an amount that exceeds five per cent of the estimated amount of a progress payment for the life of the construction project. All retainage shall be paid by the owner not later than thirty days after the issuance of a certificate of final completion by the owner or the owner’s authorized representative or not later than thirty days after the equivalent written acceptance of the construction project work by the owner.

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§ 42-158p. Retainage escrow accounts. Monthly reports. Combining accounts. Termination of accounts. Fees and expenses. Form and provision of account. Failure to deposit or release retainage. Acceptance of securities

An escrow account shall be established for all retainage, subject to the following:

(a) An escrow account shall be established in state or national banks domiciled in this state or in savings and loan associations domiciled in this state.

(b) The owner shall provide a monthly report to the contractor as to the value of the retainage being held in the escrow account and any additions to or payments from the escrow account. Upon request by a subcontractor, the contractor shall make such monthly report available for review by the subcontractor. Withdrawals from the escrow account shall be made only subject to approval of the owner.

(c) If the owner has entered into more than one construction contract with the same contractor requiring the maintenance of escrow accounts, the owner may elect to combine the amounts held as retainage under each contract into one or more escrow accounts or may establish a separate escrow account for each contract.

(d) The escrow account shall be terminated upon substantial or final completion of all work in accordance with the terms of the construction contract and full payment to the contractor.

(e) All fees and expenses related to maintaining the escrow account shall be paid by the owner.

(f) The form and provisions of the escrow account shall be included in all solicitations for construction services and shall be provided to the contractor and subcontractor prior to entering into a contract with the owner. Upon request by a subcontractor, the contractor shall make such form and provisions available for review by the subcontractor. Failure to comply with the provisions of this subsection shall not give rise to a defense to the enforcement of a contract.

(g) If an owner fails to deposit retainage that is withheld or to release retainage as required by public act 03-167 *, the owner shall pay to the contractor an additional one and one-half per cent of the amount not deposited or released for each month or fraction of a month, until the retainage amount is paid in full.

(h) An owner may accept securities in lieu of retainage from a contractor and a contractor may accept securities in lieu of retainage from a subcontractor.

(i) For the purposes of this section, “owner” means “owner”, as defined in subdivision (1) of section 42-158i.

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§ 42-158q. Escrow account exclusions

The provisions of section 42-158p do not apply to construction contracts for residential property containing four or fewer dwelling units or to construction contracts of less than twenty-five thousand dollars total value or to construction contracts relating to any public building or public work of the state or a municipality or other political subdivision of the state.

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Connecticut Retainage Guide & FAQs
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§ 42-158r. Enforcement of retainage and adjudication in this state

In an action to enforce the provisions of section 42-158k, 42-158m or 42-158p, a court may award court costs and reasonable attorney’s fees to the prevailing party.

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Retainage Statute on Public Projects

§ 49-41a. Enforcement of payment by general contractor to subcontractor and by subcontractor to its subcontractors

(a) When any public work is awarded by a contract for which a payment bond is required by section 49-41, the contract for the public work shall contain the following provisions:

(1) A requirement that the general contractor, within thirty days after payment to the contractor by the state or a municipality, pay any amounts due any subcontractor, whether for labor performed or materials furnished, when the labor or materials have been included in a requisition submitted by the contractor and paid by the state or a municipality;

(2) a requirement that the general contractor shall include in each of its subcontracts a provision requiring each subcontractor to pay any amounts due any of its subcontractors, whether for labor performed or materials furnished, within thirty days after such subcontractor receives a payment from the general contractor which encompasses labor or materials furnished by such subcontractor.

(b) Each payment requisition submitted in accordance with the requirements of subsection (a) of this section, except for any such payment requisition submitted pursuant to a contract administered by or in conjunction with the Department of Transportation, shall include a statement showing the status of all pending construction change orders, other pending change directives and approved changes to the original contract or subcontract. Such statement shall identify the pending construction change orders and other pending change directives, and shall include the date such change orders and directives were initiated, the costs associated with their performance and a description of any work completed. As used in this section, “pending construction change order” or “other pending change directive” means an authorized directive for extra work that has been issued to a contractor or a subcontractor.

(c) If payment is not made by the general contractor or any of its subcontractors in accordance with such requirements, the subcontractor shall set forth his claim against the general contractor and the subcontractor of a subcontractor shall set forth its claim against the subcontractor through notice by registered or certified mail. Ten days after the receipt of that notice, the general contractor shall be liable to its subcontractor, and the subcontractor shall be liable to its subcontractor, for interest on the amount due and owing at the rate of one per cent per month. In addition, the general contractor, upon written demand of its subcontractor, or the subcontractor, upon written demand of its subcontractor, shall be required to place funds in the amount of the claim, plus interest of one per cent, in an interest-bearing escrow account in a bank in this state, provided the general contractor or subcontractor may refuse to place the funds in escrow on the grounds that the subcontractor has not substantially performed the work according to the terms of his or its employment. In the event that such general contractor or subcontractor refuses to place such funds in escrow, and the party making a claim against it under this section is found to have substantially performed its work in accordance with the terms of its employment in any arbitration or litigation to determine the validity of such claim, then such general contractor or subcontractor shall pay the attorney’s fees of such party.

(d) No payment may be withheld from a subcontractor for work performed because of a dispute between the general contractor and another contractor or subcontractor.

(e) This section shall not be construed to prohibit progress payments prior to final payment of the contract and is applicable to all subcontractors for material or labor whether they have contracted directly with the general contractor or with some other subcontractor on the work.

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§ 49-41b. Release of payments on construction projects

When any public work is awarded by a contract for which a payment bond is required by section 49-41 and such contract contains a provision requiring the general or prime contractor under such contract to furnish a performance bond in the full amount of the contract price, the following shall apply:

(1) In the case of a contract advertised by the Department of Administrative Services or any other state agency, except as specified in subdivision (2) of this section, (A) the awarding authority shall not withhold more than seven and one-half per cent from any periodic or final payment which is otherwise properly due to the general or prime contractor under the terms of such contract, provided, when fifty per cent of the contract is completed, said amount shall be reduced to five per cent, and (B) any such general or prime contractor shall not withhold from any subcontractor more than (i) seven and one-half per cent from any periodic or final payment which is otherwise due to the subcontractor, or (ii) the amount withheld by the awarding authority from such general or prime contractor under subparagraph (A) of this subdivision, whichever is less, provided, when fifty per cent of the contract is completed, said amount shall be reduced to five per cent. Payment shall be made not later than ninety days after a complete application for payment demonstrating that fifty per cent contract completion has been submitted to the awarding authority. Notwithstanding the provisions of this subdivision (1), the awarding authority shall establish an early release program with respect to periodic payments by general or prime contractors to subcontractors.

(2) In the case of a contract advertised by the state Department of Transportation, (A) the department shall not withhold more than two and one-half per cent from any periodic or final payment which is otherwise properly due to the general or prime contractor under the terms of such contract, and (B) any such general or prime contractor shall not withhold more than two and one-half per cent from any periodic or final payment which is otherwise due to any subcontractor.

(3) If the awarding authority is a municipality, (A) the municipality shall not withhold more than five per cent from any periodic or final payment which is otherwise properly due to the general or prime contractor under the terms of such contract, and (B) any such general or prime contractor shall not withhold more than five per cent from any periodic or final payment which is otherwise due to any subcontractor.

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§ 3-112a. Substitution of securities for retainages on state contracts and subcontracts

(a) Under any contract made or awarded by the state, or by any public department or official thereof, or under any subcontract made directly thereunder with the contractor, the contractor and any subcontractor may, from time to time, withdraw the whole or any portion of the amount retained for payments to the contractor or subcontractors, as the case may be, pursuant to the terms of the contract or subcontracts, upon depositing with the Comptroller (1) United States Treasury bonds, United States Treasury notes, United States Treasury certificates of indebtedness or United States Treasury bills, or (2) bonds or notes of the state of Connecticut or (3) bonds of any political subdivision in the state of Connecticut. No amount shall be withdrawn in excess of the market value of the securities at the time of deposit or of the par value of such securities, whichever is lower.

(b) The Comptroller shall, on a regular basis, collect all interest or income on the obligations so deposited and shall pay the same, when and as collected, to the contractor and the subcontractors who deposited the obligations. If the deposit is in the form of coupon bonds, the Comptroller shall deliver each coupon as it matures to the contractor and the subcontractors.

(c) Any amount deducted by the state, or by any public department or official thereof, pursuant to the terms of the contract, and subcontracts made directly thereunder with the contractor, from the retainages due the contractor and said subcontractors, shall be deducted, first from that portion of the retainages for which no security has been substituted, then from the proceeds of any deposited security. In the latter case, the contractor and the subcontractors shall be entitled to receive interest, coupons or income only from those securities which remain after such amount has been deducted.

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Connecticut Retainage Guide & FAQs
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