Iowa Retainage Guide and FAQs

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Iowa Retainage FAQs

Iowa Retainage Overview

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

Retainage 5% Icon
5 Percent

Retainage cannot exceed 5% of the estimated labor/material furnished.


Payment Period 30 Days Icon
30 Day Pay Period

Funds shall be released within 30 days of when payment to contractor becomes due. Payment to a subcontractor must be made no later than (1) 7 days after the contractor receives payment; or (2) "A reasonable time after the contractor could have received payment for subcontractor’s work, if the reason for nonpayment is not the subcontractor's fault."


YES
PROCESS
There is a Process to Recover

Claim must be filed with public entity within 30 days of final acceptance - period can be extended if full contract price unpaiud.

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:

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

Iowa’s retainage limits & deadlines

Iowa does not regulate retainage practices on private projects, so the amount withheld and the timing of its release will be determined by the terms of the contract between the parties.

On public projects, the maximum amount of retainage that can be withheld is no more than 5% of each progress payment. Upon 30 days of completion and acceptance of the project, if no claims have been made against the retained funds, the public entity must release retention to the GC. Once received, retainage must be released to subs and suppliers within 7 days.

Also, once a portion or all of the improvement has reached substantial completion, the contractor may submits a request for early release of retainage. If no claims have been made against the retained funds, and no more labor and/or materials need to be provided to the project, the retainage funds should be released.

Iowa Retainage Frequently Asked Questions

Iowa Retainage Private Projects FAQs

Does Iowa regulate retainage on private construction projects?

Iowa does not provide a retainage statute for private projects. Therefore the amount of retainage to be withheld and the timing of its release will be governed by the terms of the contract.

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

Iowa Retainage Public Projects FAQs

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

Yes, a public entity may withhold no more than 5% of the estimated value of labor and/or materials furnished per month. In turn, contractors may retain either 5% of each progress payments, or the rate specified in the subcontract; whichever is less.

How long can a party withhold retainage in Iowa?

The final release of retainage must be made within 30 days of completion and acceptance of the project. Once received, retainage must be released down the contracting chain within 7 days.

There is also an option for early release of retainage when all or a portion of the improvement has reached substantial completion. The contractor must submit a request for early release of retainage to the public entity after providing notice to all known subs and suppliers. The release of which is up to the discretion of the entity. If, however, the contractor gave a proper notice, and there is no more labor or materials to be provided, the entity must release all or part of the retained funds.

Download a free Iowa Request for Early Release of Retainage form here

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

The Iowa retainage statute makes no mention of the requirement to deposit funds in an escrow account, nor does it mention the ability to substitute securities in lieu of retention, such as a retainage bond. Thus, it’s likely that these requirements or options will be dictated by the terms of the contract itself.

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

A claim may be filed with the officer, board, or commission authorized by law for that specific contract. Claims may be filed later, as long as the contract has not been paid in full and there are no actions pending on the retained funds. When claims are filed, the entity will withhold double the total amount of claims until they are resolved.

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

An action to enforce the claim must be initiated more than 30 days, but less than 60 days after 95% completion of the contract.

• For more on this, see: Iowa Bond Claim Guide & FAQs

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Iowa Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Iowa’s 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. Iowa’s specific laws can be found in Iowa Code §§573.12-573.16, & 573.28, and are reproduced below. Updated as of July 2021.

Retainage Statute on Private Projects

N/A

Iowa does not provide a retainage statute for private projects.

Retainage Statute on Public Projects

§ 573.12. Payments and retention from payments on contracts

1. Retention. Payments made under contracts for the construction of public improvements, unless provided otherwise by law, shall be made on the basis of monthly estimates of labor performed and material delivered, as determined by the project architect or engineer. The public corporation shall retain from each monthly payment not more than five percent of that amount which is determined to be due according to the estimate of the architect or engineer. The contractor may retain from each payment to a subcontractor not more than the lesser of five percent or the amount specified in the contract between the contractor and the subcontractor.

2. Prompt payment.

a.

(1) Interest shall be paid to the contractor on any progress payment that is approved as payable by the public corporation’s project architect or engineer and remains unpaid for a period of fourteen days after receipt of the payment request at the place, or by the person, designated in the contract, or by the public corporation to first receive the request, or for a time period greater than fourteen days, unless a time period greater than fourteen days is specified in the contract documents, not to exceed thirty days, to afford the public corporation a reasonable opportunity to inspect the work and to determine the adequacy of the contractor’s performance under the contract.

(2) Interest shall accrue during the period commencing the day after the expiration of the period defined in subparagraph (1) and ending on the date of payment. The rate of interest shall be determined as set forth in section 573.14.

b. A progress payment or final payment to a subcontractor for satisfactory performance of the subcontractor’s work shall be made no later than one of the following, as applicable:

(1) Seven days after the contractor receives payment for that subcontractor’s work.

(2) A reasonable time after the contractor could have received payment for the subcontractor’s work, if the reason for nonpayment is not the subcontractor’s fault. A contractor’s acceptance of payment for one subcontractor’s work is not a waiver of claims, and does not prejudice the rights of the contractor, as to any other claim related to the contract or project.

3. Interest payments.

a. If the contractor receives an interest payment under section 573.14, the contractor shall pay the subcontractor a share of the interest payment proportional to the payment for that subcontractor’s work.

b. If a public corporation other than a school corporation, county, or city retains funds, the interest earned on those funds shall be payable at the time of final payment on the contract in accordance with the schedule and exemptions specified by the public corporation in its administrative rules. The rate of interest shall be determined by the period of time during which interest accrues, and shall be the same as the rate of interest that is in effect under section 12C.6 as of the day interest begins to accrue.

§ 573.13. Inviolability and disposition of fund

A public corporation shall not be permitted to plead noncompliance with section 573.12 and the retained percentage of the contract price, which in no case shall be more than five percent, constitutes a fund for the payment of claims for materials furnished and labor performed on the improvement and shall be held and disposed of by the public corporation as provided in this chapter.

§ 573.14. Retention of unpaid funds

1. The fund provided for in section 573.13 shall be retained by the public corporation for a period of thirty days after the completion and final acceptance of the improvement. If at the end of the thirty-day period claims are on file, the public corporation shall continue to retain from the unpaid funds a sum equal to double the total amount of all claims on file. The remaining balance of the unpaid fund, or if no claims are on file, the entire unpaid fund, shall be released and paid to the contractor.

2. The public corporation shall order payment of any amount due the contractor to be made in accordance with the terms of the contract. Except as provided in section 573.12 for progress payments, failure to make payment pursuant to this section, of any amount due the contractor, within forty days, unless a greater time period not to exceed fifty days is specified in the contract documents, after the work under the contract has been completed and if the work has been accepted and all required materials, certifications, and other documentations required to be submitted by the contractor and specified by the contract have been furnished the awarding public corporation by the contractor, shall cause interest to accrue on the amount unpaid to the benefit of the unpaid party. Interest shall accrue during the period commencing the thirty-first day following the completion of work and satisfaction of the other requirements of this subsection and ending on the date of payment. The rate of interest shall be determined by the period of time during which interest accrues, and shall be the same as the rate of interest that is in effect under section 12C.6, as of the day interest begins to accrue, for a deposit of public funds for a comparable period of time. However, for institutions governed pursuant to chapter 262, the rate of interest shall be determined by the period of time during which interest accrues, and shall be calculated as the prime rate plus one percent per year as of the day interest begins to accrue. This subsection does not abridge any of the rights set forth in section 573.16. Except as provided in sections 573.12 and 573.16, interest shall not accrue on funds retained by the public corporation to satisfy the provisions of this section regarding claims on file. This chapter does not apply if the public corporation has entered into a contract with the federal government or accepted a federal grant which is governed by federal law or rules that are contrary to the provisions of this chapter. For purposes of this subsection, “prime rate” means the prime rate charged by banks on short-term business loans, as determined by the board of governors of the federal reserve system and published in the federal reserve bulletin.

§ 573.15. Exception

1. A person, firm, or corporation that has performed labor for or furnished materials, service, or transportation to a subcontractor shall not be entitled to a claim against the retainage or bond under this chapter unless the person, firm, or corporation that performed the labor or furnished the materials, service, or transportation does all of the following:

a. Notifies the principal contractor in writing with a one-time notice containing the name, mailing address, and telephone number of the person, firm, or corporation that performed the labor or furnished the materials, service, or transportation, and the name of the subcontractor for whom the labor was performed or the materials, service, or transportation were furnished, within thirty days of first performing the labor or furnishing the materials, service, or transportation for which a claim may be made. Additional labor performed or materials, service, or transportation furnished by the same person, firm, or corporation to the same subcontractor for use in the same construction project shall be covered by this notice.

b. Supports the claim with a certified statement that the principal contractor received the notice described in paragraph “a”.

2. This section shall not apply to highway, bridge, or culvert projects as referred to in section 573.28.

§ 573.15A. Early release of retained funds

Notwithstanding section 573.14, a public corporation may release retained funds upon completion of ninety-five percent of the contract in accordance with the following:

1. Any person, firm, or corporation who has, under contract with the principal contractor or with subcontractors, performed labor, or furnished materials, service, or transportation, in the construction of the public improvement, may file with the public corporation an itemized, sworn, written statement of the claim for the labor, or materials, service, or transportation. The claim shall be filed with the public corporation either before the expiration of the thirty days after completion of ninety-five percent of the contract or at any time after the thirty-day period if the public corporation has not paid the full contract price and no action is pending to adjudicate rights in and to the unpaid portion of the contract price.

2. The fund, as provided in section 573.13, shall be retained by the public corporation for a period of thirty days after ninety-five percent of the contract has been completed. If at the end of the thirty-day period, a claim has been filed, in accordance with this section, the public corporation shall continue to retain from the unpaid funds, a sum equal to double the total amount of all claims on file. The remaining balance of the unpaid fund, or if there are no claims on file, the entire unpaid fund, may be released and paid to the contractor.

3. The public corporation, the principal contractor, or any claimant for labor or materials, service, or transportation, who has filed a claim or the surety on any bond given for performance of the contract, at any time after the expiration of thirty days, and not later than sixty days after the completion of ninety-five percent of the contract, may bring an action in equity in the county where the public improvement is located to determine rights to moneys contained in the fund or to enforce liability on the bond. The action shall be brought in accordance with sections 573.16 through 573.18, with the completion of ninety-five percent of the contract taking the place of the date of final acceptance.

4. A public corporation that releases funds at the completion of ninety-five percent of the contract, in accordance with this section, shall not be required to retain additional funds.

§ 573.16. Optional and mandatory actions - bond to release

The public corporation, the principal contractor, any claimant for labor or material who has filed a claim, or the surety on any bond given for the performance of the contract, may, at any time after the expiration of thirty days, and not later than sixty days, following the completion and final acceptance of said improvement, bring action in equity in the county where the improvement is located to adjudicate all rights to said fund, or to enforce liability on said bond.

Upon written demand of the contractor served, in the manner prescribed for original notices, on the person filing a claim, requiring the claimant to commence action in court to enforce the claim, an action shall be commenced within thirty days, otherwise the retained and unpaid funds due the contractor shall be released. Unpaid funds shall be paid to the contractor within twenty days of the receipt by the public corporation of the release as determined pursuant to this section. Failure to make payment by that date shall cause interest to accrue on the unpaid amount. Interest shall accrue during the period commencing the twenty-first day after the date of release and ending on the date of the payment. The rate of interest shall be determined pursuant to section 573.14. After an action is commenced, upon the general contractor filing with the public corporation or person withholding the funds, a surety bond in double the amount of the claim in controversy, conditioned to pay any final judgment rendered for the claims so filed, the public corporation or person shall pay to the contractor the amount of funds withheld.

§ 573.28. Early release of retained funds

1. For purposes of this section:

a. “Authorized contract representative” means the person chosen by the governmental entity or the department to represent its interests or the person designated in the contract as the party representing the governmental entity’s or the department’s interest regarding administration and oversight of the project.

b. “Department” means the state department of transportation.

c. “Governmental entity” means the state, political subdivisions of the state, public school corporations, and all officers, boards, or commissions empowered by law to enter into contracts for the construction of public improvements, excluding the state board of regents and the department.

d. “Public improvement” means a building or construction work which is constructed under the control of a governmental entity and is paid for in whole or in part with funds of the governmental entity, including a building or improvement constructed or operated jointly with any other public or private agency, but excluding urban renewal demolition and low-rent housing projects, industrial aid projects authorized under chapter 419, emergency work or repair or maintenance work performed by employees of a governmental entity, and excluding a highway, bridge, or culvert project, and excluding construction or repair or maintenance work performed for a city utility under chapter 388 by its employees or performed for a rural water district under chapter 357A by its employees.

e. “Repair or maintenance work” means the preservation of a building, storm sewer, sanitary sewer, or other public facility or structure so that it remains in sound or proper condition, including minor replacements and additions as necessary to restore the public facility or structure to its original condition with the same design.

f. “Substantially completed” means the first date on which any of the following occurs:

(1) Completion of the public improvement project or the highway, bridge, or culvert project or when the work on the public improvement or the highway, bridge, or culvert project has been substantially completed in general accordance with the terms and provisions of the contract.

(2) The work on the public improvement or on the designated portion is substantially completed in general accordance with the terms of the contract so that the governmental entity or the department can occupy or utilize the public improvement or designated portion of the public improvement for its intended purpose. This subparagraph shall not apply to highway, bridge, or culvert projects.

(3) The public improvement project or the highway, bridge, or culvert project is certified as having been substantially completed by either of the following:

(a) The architect or engineer authorized to make such certification.w

(b) The authorized contract representative.

(4) The governmental entity or the department is occupying or utilizing the public improvement for its intended purpose. This subparagraph shall not apply to highway, bridge, or culvert projects.

2. Payments made by a governmental entity or the department for the construction of public improvements and highway, bridge, or culvert projects shall be made in accordance with the provisions of this chapter, except as provided in this section:

a. At any time after all or any part of the work on the public improvement or highway, bridge, or culvert project is substantially completed, the contractor may request the release of all or part of the retained funds owed. The request shall be accompanied by a sworn statement of the contractor that, ten calendar days prior to filing the request, notice was given as required by paragraphs “f” and “g” to all known subcontractors, sub-subcontractors, and suppliers.

b. Except as provided under paragraph “c”, upon receipt of the request, the governmental entity or the department shall release all or part of the retained funds. Retained funds that are approved as payable shall be paid at the time of the next monthly payment or within thirty days, whichever is sooner. If partial retained funds are released pursuant to a contractor’s request, no retained funds shall be subsequently held based on that portion of the work. If within thirty days of when payment becomes due the governmental entity or the department does not release the retained funds due, interest shall accrue on the amount of retained funds at the rate of interest that is calculated as the prime rate plus one percent per year as of the day interest begins to accrue until the amount is paid.

c. If labor and materials are yet to be provided at the time the request for the release of the retained funds is made, an amount equal to two hundred percent of the value of the labor or materials yet to be provided, as determined by the governmental entity’s or the department’s authorized contract representative, may be withheld until such labor or materials are provided.

d. An itemization of the labor or materials yet to be provided, or the reason that the request for release of retained funds is denied, shall be provided to the contractor in writing within thirty calendar days of the receipt of the request for release of retained funds.

e. The contractor shall release retained funds to the subcontractor or subcontractors in the same manner as retained funds are released to the contractor by the governmental entity or the department. Each subcontractor shall pass through to each lower-tier subcontractor all retained fund payments from the contractor.

f. Prior to applying for release of retained funds, the contractor shall send a notice to all known subcontractors, sub-subcontractors, and suppliers that provided labor or materials for the public improvement project or the highway, bridge, or culvert project.

g. The notice shall be substantially similar to the following:

NOTICE OF CONTRACTOR’S REQUEST

FOR EARLY RELEASE OF RETAINED FUNDS

You are hereby notified that [name of contractor] will be requesting an early release of funds on a public improvement project or a highway, bridge, or culvert project designated as [name of project] for which you have or may have provided labor or materials. The request will be made pursuant to Iowa Code section 573.28. The request may be filed with the [name of governmental entity or department] after ten calendar days from the date of this notice. The purpose of the request is to have [name of governmental entity or department] release and pay funds for all work that has been performed and charged to [name of governmental entity or department] as of the date of this notice. This notice is provided in accordance with Iowa Code section 573.28.

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