Kentucky Retainage Guide and FAQs

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Kentucky Retainage FAQs

Kentucky Retainage Overview

Kentucky Retainage Requirements


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Retainage 10% Icon
10% Retainage Limit

Retainage must not exceed 10% until 50% completion, after which, no more than 5% may be withheld.


Payment Period 30 Days Icon
30 Day Pay Period

Retainage funds must be released within 30 days after substantial completion of the project. If any work remains upon substantial completion, up to 200% of the amount of the remaining work may continue to be withheld as retainage.


NO
PROCESS
There's No Process to Recover

Not specified


No Escrow Icon
Not Held In Escrow

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

Retainage 10% Icon
10 Percent

Retainage must not exceed 10% until 50% completion, after which, no more than 5% may be withheld.


Payment Period 30 Days Icon
30 Day Pay Period

Retainage funds must be released within 30 days after substantial completion of the project. If any work remains upon substantial completion, up to 200% of the amount of the remaining work may continue to be withheld as retainage.


NO
PROCESS
There's No Process to Recover

Not specified


No Escrow Icon
Not Held In Escrow

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

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 Kentucky’s retainage requirements.

Kentucky’s retainage limits and deadlines

The Kentucky retainage statutes under the Kentucky Fairness in Construction Act, apply to both private and public projects; with the exception of residential projects and public utility projects.

The amount of retainage that may be withheld cannot exceed 10% of any undisputed payments due. However, upon 50% completion, the amount of retainage must be reduced to no more than 5% of the total contract amount.

When the project reaches substantial completion, retainage must be partially released within 30 days. Once received, retainage payments must be made to any subs and suppliers within 15 days. However, if there is remaining work to be completed, the contracting entity or contractor may withhold up to 200% of the reasonably estimated costs until the project is completed. The remainder of the retainage will be released based on the agreed-upon schedule to complete the project. Late payment of retainage will accrue interest at a rate of 12% per year until payment is made.

Kentucky Retainage Frequently Asked Questions

Kentucky Retainage Private & Public Projects FAQs

What types of projects are governed by Kentucky’s retainage laws?

Kentucky’s retainage laws apply to both public and private construction projects within the state. There are some exceptions, such as residential projects or utility projects as defined under KRS Chapter 278.

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

Yes, contracting entities, prime contractors, and subcontractors cannot withhold more than 10% of each progress payment until the project reaches 50% completion. After which, no more than 5% may be withheld for the remainder of the project.

How long can a party withhold retainage in Kentucky?

Retainage must be partially released within 30 days of the project’s substantial completion. However, the contracting entity or contractor may withhold up to 200% of the amount of the reasonably estimated costs to complete any remaining work. Substantial completion is defined as the point of the project that has reached a level of completion where:

• Any necessary approvals by public regulatory authorities has been given;

• Owner has received all warranties and documentation;

• Owner can enjoy beneficial use, occupancy, or use/operation/maintenance of the project for its intended purpose.

Once retainage has been released, the party must pay their subcontractors and/or suppliers their portion of retainage within 15 days.

The remainder of the retainage withheld will be released upon the schedule agreed upon by the parties to reach final completion of the project.

Does Kentucky require retained funds to be deposited in a special account? Can securities be substituted?

There is no specific statutory requirement to hold retained funds in an escrow account in Kentucky. As far as the ability to substitute securities, such as a retention bond, is also unspecified by statute. So the ability or requirement to do either will likely be determined by the terms of the contract itself.

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

Kentucky law does not provide any special notice to recover retainage. Sending a prompt payment demand letter or a notice of intent to lien or intent to make a bond claim is a good place to start. Note, however, that such claims may have their own notice requirements to recover payment.

Lastly, if the contracting entity, contractor, or subcontractor fails to pay retainage within the specified time, interest will accrue at a rate of 12% per year (1% per month) until payment is made.

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

No method has been specified for the recovery of retainage in Kentucky. Presumably, other collections tools such as filing a mechanics lien claim or a claim against the payment bond, claims under the KY prompt payment act, or pursuing contract claims are available to recover retainage payments.

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Kentucky Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Kentucky’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. Kentucky’s specific laws can be found under KY. Rev. Stat. Ann. § 371.410, which is reproduced below. Updated as of August 2021.

Retainage Statute

§ 371.410. Retainage that may be withheld -- Release of retainage -- Substantial completion

(1) Notwithstanding any provision of the Kentucky Revised Statutes to the contrary, until fifty percent (50%) of the construction project has been completed in accordance with the contract, a contracting entity, contractor, or subcontractor may withhold no more than ten percent (10%) retainage from the amount of any undisputed payment due, and retainage held after fifty-one percent (51%) of the construction project has been completed shall not be more than five percent (5%) of the total contract amount.

(2) Within thirty (30) days after substantial completion of a construction project, the contracting entity or contractor shall release the retainage less an amount equal to two hundred percent (200%) of the contracting entity’s reasonably estimated cost of the balance of any contractor’s or subcontractor’s contractually obligated, yet uncompleted, work remaining. The contracting entity’s agent shall determine the reasonably estimated cost due under this subsection. The contracting entity, contractor, and any subcontractor with work yet to be completed shall mutually agree with the schedule for completion of the work necessary for release of final payment. Within fifteen (15) business days after the retainage has been released by the contracting entity to the contractor, the contractor shall release to the subcontractors their proportional shares of the retainage. For purposes of this subsection, “substantial completion” is the point at which, as certified in writing by the contracting entity, a project is at the level of completion, in strict compliance with the contract, where:

(a) Necessary approval by public regulatory authorities has been given;

(b) The owner has received all required warranties and documentation; and

(c) The owner may enjoy beneficial use or occupancy and may use, operate, and maintain the project in all respects, for its intended purpose.

Partial use or occupancy shall not necessarily result in the project being deemed substantially complete and shall not be evidence of substantial completion.

(3) If a contracting entity, contractor, or subcontractor fails to pay retainage, if any, pursuant to the terms of a contract or as required in this section, the contracting entity, contractor, or subcontractor shall pay interest to the contractor or subcontractor to whom payment was due, beginning on the first business day after the payment was due, at the rate of twelve percent (12%) per annum.

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