Indiana Retainage Guide and FAQs

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Indiana Retainage FAQs

Indiana Retainage Overview

Indiana Retainage Requirements


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Retainage Unregulated Icon
Retainage Limit

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

6%
6 Percent

Whether retainage may be withheld may depend on the value of the project. Generally, there are 2 options: the public entity may withhold no more than 6% until the work is 50% complete, or it may withhold no more than 3% until the work is substantially complete.


61
DAYS
61 Day Pay Period

All retainage funds must be released to the contractor within 61 days following the date of substantial completion if contractor has fulfilled all obligations under the contract.


YES
PROCESS
There is a Process to Recover

Yes, must file a verified claim with public entity and provide copy to contractor within 60 days of last furnishing.

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 Indiana’s retainage requirements. The Indiana retainage statutes are reproduced below on this page.

Indiana Retainage Frequently Asked Questions

Indiana Retainage Private Projects FAQs

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

Indiana does not provide a retainage statute for private projects.

How long can a party withhold retainage in Indiana?

Indiana does not provide a retainage statute for private projects.

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

Indiana does not provide a retainage statute for private projects.

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

Indiana does not provide a retainage statute for private projects.

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

Indiana does not provide a retainage statute for private projects.

Indiana Retainage Public Projects FAQs

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

For contracts over $1 million (all State projects other than universities), there are 2 options: the public entity may withhold no more than 6% until the work is 50% complete, or it may withhold  no more than 3% until the work is substantially complete. If minor items remain incomplete upon substantial completion, 200% of the value of each particular unfinished item may be withheld. This may also be applied to contracts for less than $1 million.

For State projects and Local (including schools) projects over $200,000, there are 2 options: the public entity may withhold between 6% and 10% of the value of the work until 50% completion, whereupon no additional withholding is allowed, or it may retain a maximum of 5%, but not less than 3% of the value of the work, until project completion.  If minor items remain incomplete upon substantial completion, 200% of the value of each particular unfinished item may be withheld.

How long can a party withhold retainage in Indiana?

All retainage funds must be released to the contractor no later than 61 days following the date of substantial completion if contractor has fulfilled all obligations under the contract.

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

Depending on contract provisions, retainage funds may be deposited into an escrow account with a bank, savings and loan institution, the state of Indiana, or an instrumentality of the state of Indiana as the escrow agent.

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

Subcontractors or suppliers have 60 days after the date of last services were provided to submit a claim for payment.

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

Must file a verified claim with the public division and deliver a copy of the claim to the contractor not later than 60 days after the date the last services occurred.

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Indiana Retainage Statute FAQs

Getting informed about prompt payment laws is important. An examination of Indiana’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. Indiana’s specific laws can be found in: Ind. Code § 4-13.6-7-1, Ind. Code § 4-13.6-7-2, and Ind. Code § 4-13.6-7-3 and Ind. Code § 5-16-5.5-3.5; 36-1-12-14, and are reproduced below.

Retainage Statute on Private Projects

N/A

Indiana does not provide a specific retainage statute for private projects.

Retainage Statute on Public Projects

§ 4-13.6-7-1: Application of Chapter

The director may apply this chapter to public works projects with an estimated cost less than the amounts specified in section 2 or 7 of this chapter.

§ 4-13.6-7-2: Contract Provisions for Retainage of Payments; Escrow Accounts and Agreements

(a) If the estimated cost of a public works project is one million dollars ($1,000,000) or more, the division shall include as part of the public works contract provisions for the retainage of portions of payments by the division to the contractor, by the contractor to subcontractors, and for the payment of subcontractors and suppliers by the contractor. The contract must provide that the division may withhold from the contractor sufficient funds from the contract price to pay subcontractors and suppliers as provided in section 4 of this chapter.

(b) A public works contract and contracts between contractors and subcontractors, if portions of the public works contract are subcontracted, may include a provision that at the time any retainage is withheld, the division or the contractor, as the case may be, may place the retainage in an escrow account, as mutually agreed, with:
(1) a bank;
(2) a savings and loan institution;
(3) the state of Indiana; or
(4) an instrumentality of the state of Indiana;

as escrow agent. The parties to the contract shall select the escrow agent by mutual agreement. The parties to the agreement shall enter into a written agreement with the escrow agent.

(c) The escrow agreement must provide the following:
(1) The escrow agent shall promptly invest all escrowed principal in the obligations that the escrow agent selects, in its discretion.
(2) The escrow agent shall hold the escrowed principal and income until it receives notice from both of the other parties to the escrow agreement specifying the percentage of the escrowed principal to be released from the escrow and the persons to whom this percentage is to be released. When it receives this notice, the escrow agent shall promptly pay the designated percentage of escrowed principal and the same percentage of the accumulated escrowed income to the persons designated in the notice.
(3) The escrow agent shall be compensated for its services as the parties may agree. The compensation shall be a commercially reasonable fee commensurate with fees being charged at the time the escrow fund is established for the handling of escrow accounts of like size and duration. The fee must be paid from the escrowed income of the escrow account.

(d) The escrow agreement may include other terms and conditions that are not inconsistent with subsection (c). Additional provisions may include provisions authorizing the escrow agent to commingle the escrowed funds held under other escrow agreements and provisions limiting the liability of the escrow agent.

§ 4-13.6-7-3: Amount of Retainage Withheld

(a) To determine the amount of retainage to be withheld, the division shall elect one (1) of the following options:

(1) To withhold no more than six percent (6%) of the dollar value of all work satisfactorily completed until the public work is fifty percent (50%) complete, and nothing further after that.

(2) To withhold no more than three percent (3%) of the dollar value of all work satisfactorily completed until the public work is substantially complete.

(b) If upon substantial completion of the work there are any remaining uncompleted minor items, the division shall withhold, until those items are completed, an amount equal to four hundred percent (400%) of the value of each item as determined by the architect-engineer.

§ 5-16-5.5-3.5: Retainage; Options to Determine Amount

a) To determine the amount of retainage to be withheld, a state agency shall elect one (1) of the following options:

(1) Withhold no more than ten percent (10%) nor less than six percent (6%) of the dollar value of all work satisfactorily completed until the public work is fifty percent (50%) complete, and nothing further after that.

(2) Withhold no more than five percent (5%) nor less than three percent (3%) of the dollar value of all work satisfactorily completed until the public work is substantially complete.

b) If upon substantial completion of the work there are any remaining uncompleted minor items, an amount computed under section 6 of this chapter shall be withheld until those items are completed.

§ 36-1-12-14: Contracts in Excess of $200,000; Retainage of Portions of Payments; Escrow Agreements; Performance Bond; Payment on Substantial Completion; Actions Against Surety; Contracts Less Than $250,000

(a) This section applies to public work contracts in excess of two hundred thousand dollars ($200,000) for projects other than highways, roads, streets, alleys, bridges, and appurtenant structures situated on streets, alleys, and dedicated highway rights-of-way. A board may require a contractor and subcontractor to include contract provisions for retainage as set forth in this section for contracts that are not more than two hundred thousand dollars ($200,000). This section also applies to a lessor corporation qualifying under IC 20-47-2 or IC 20-47-3 or any other lease-back arrangement containing an option to purchase, notwithstanding the statutory provisions governing those leases.

(b) A board that enters into a contract for public work, and a contractor who subcontracts parts of that contract, shall include in their respective contracts provisions for the retainage of portions of payments by the board to contractors, by contractors to subcontractors, and for the payment of subcontractors. At the discretion of the contractor, the retainage shall be held by the board or shall be placed in an escrow account with a bank, savings and loan institution, or the state as the escrow agent. The escrow agent shall be selected by mutual agreement between board and contractor or contractor and subcontractor under a written agreement among the bank or savings and loan institution and:

(1) the board and the contractor; or

(2) the subcontractor and the contractor.

The board shall not be required to pay interest on the amounts of retainage that it holds under this section.

(c) To determine the amount of retainage to be withheld, the board shall:

(1) withhold no more than ten percent (10%) nor less than six percent (6%) of the dollar value of all work satisfactorily completed until the public work is fifty percent (50%) completed, and nothing further after that; or

(2) withhold no more than five percent (5%) nor less than three percent (3%) of the dollar value of all work satisfactorily completed until the public work is substantially completed.

If upon substantial completion of the public work minor items remain uncompleted, an amount computed under subsection (f) shall be withheld until those items are completed.

(d) The escrow agreement must contain the following provisions:

(1) The escrow agent shall invest all escrowed principal in obligations selected by the escrow agent.

(2) The escrow agent shall hold the escrowed principal and income until receipt of notice from the board and the contractor, or the contractor and the subcontractor, specifying the part of the escrowed principal to be released from the escrow and the person to whom that portion is to be released. After receipt of the notice, the escrow agent shall remit the designated part of escrowed principal and the same proportion of then escrowed income to the person specified in the notice.

(3) The escrow agent shall be compensated for the agent’s services. The parties may agree on a reasonable fee comparable with fees being charged for the handling of escrow accounts of similar size and duration. The fee shall be paid from the escrowed income.

The escrow agreement may include other terms and conditions consistent with this subsection, including provisions authorizing the escrow agent to commingle the escrowed funds with funds held in other escrow accounts and limiting the liability of the escrow agent.

(e) Except as provided by subsections (i) and (h), the contractor shall furnish the board with a performance bond equal to the contract price. If acceptable to the board, the performance bond may provide for incremental bonding in the form of multiple or chronological bonds that, when taken as a whole, equal the contract price. The surety on the performance bond may not be released until one (1) year after the date of the board’s final settlement with the contractor. The performance bond must specify that:

(1) a modification, omission, or addition to the terms and conditions of the public work contract, plans, specifications, drawings, or profile;

(2) a defect in the public work contract; or

(3) a defect in the proceedings preliminary to the letting and awarding of the public work contract; does not discharge the surety.

(f) The board or escrow agent shall pay the contractor within sixty-one (61) days after the date of substantial completion, subject to sections 11 and 12 of this chapter. Payment by the escrow agent shall include all escrowed principal and escrowed income. If within sixty-one (61) days after the date of substantial completion there remain uncompleted minor items, an amount equal to two hundred percent (200%) of the value of each item as determined by the architect-engineer shall be withheld until the item is completed. Required warranties begin not later than the date of substantial completion.

(g) Actions against a surety on a performance bond must be brought within one (1) year after the date of the board’s final settlement with the contractor.

(h) This subsection applies to public work contracts of less than two hundred fifty thousand dollars ($250,000). The board may waive the performance bond requirement of subsection (e) and accept from a contractor an irrevocable letter of credit for an equivalent amount from an Indiana financial institution approved by the department of financial institutions instead of a performance bond. Subsections (e) through (g) apply to a letter of credit submitted under this subsection.

(i) This subsection applies to the Indiana stadium and convention building authority created by IC 5-1-17-6. The board awarding the contract for a capital improvement project may waive any performance bond requirement if the board, after public notice and hearing, determines:

(1) that: (A) an otherwise responsive and responsible bidder is unable to provide the performance bond; or (B) the cost or coverage of the performance bond is not in the best interest of the project; and

(2) that an adequate alternative is provided through a letter of credit, additional retainage of at least ten percent (10%) of the contract amount, a joint payable check system, or other sufficient protective mechanism.

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