Michigan Retainage Guide and FAQs

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Michigan Retainage FAQs

Michigan Retainage Overview

Michigan Retainage Requirements


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  • Public Jobs
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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 Michigan, contractors and owners do not need to hold retainage funds in a separate escrow account.

Retainage 10% Icon
10 Percent

Retainage cannot exceed 10%. But once the project reaches 50% completion, if satisfactory progress is being made, no more retainage will be withheld.


Payment Period Icon
Pay Period

At any time after 94% of work under the contract is completed, the contractor can submit an irrevocable letter of credit for the release. if not, retainage will be released 30 days after final approval.


NO
PROCESS
There's No Process to Recover

N/A


Escrow Icon
Retainage Held in Escrow

Retainage must be held in escrow by the public entity, with the interest accrued payable to the contractor.

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 Michigan’s retainage requirements.

Michigan’s retainage limits and deadlines

Michigan’s retainage statutes only apply to public works projects. On all other projects, such as commercial and residential projects, the terms of the contract will dictate the retainage withheld from payments.

The public project retainage laws in Michigan apply to most projects over $30K that provides for at least 4 progress payments. The amount that can be withheld is capped at no more than 10% of each progress payment. However, once the project reaches 50% completion, no more retainage can be withheld; unless the entity deems that satisfactory progress isn’t being achieved.

Also, upon 94% completion, the contractor may request the release of retainage in exchange for an irrevocable letter of credit in the amount withheld. If not, then retainage should typically be released by the public entity within 30 days of acceptance by the architect or engineer.

Michigan Retainage Frequently Asked Questions

Michigan Retainage Private Projects FAQs

Does Michigan regulate retainage on private projects?

Michigan does not have any statutes governing retainage practices on private projects. Therefore, the amount withheld, the timing of payments, and penalties will be governed by the terms of the contract.

Michigan Retainage Public Projects FAQs

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

Michigan’s public prompt payment laws apply to almost all publicly owned or financed projects within the state that:

• Are valued at $30,000 or more; &

• Requires at least four progress payments.

These rules, however, do not apply to public projects owned by the Michigan DOT, schools, or state housing development authority.

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

Yes, no more than 10% of each progress payment may be withheld as retainage

When the project reaches 50% completion, no additional retainage may be withheld. Unless the public entity determines that satisfactory progress is not being made, then they may continue to withhold no more than 10% from the remaining progress payments.

How long can a party withhold retainage on public projects in Michigan?

Generally, retainage will be released along with the final progress payment within 30 days after the architect or engineer on the project approval.

However, after 94% completion of the work, the prime contractor may request the release of retainage if they provide an irrevocable letter of credit in the amount of retainage issued by a bank authorized to do business in the state, and the terms are agreed upon by both the contractor and the public entity

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

Yes, the public entity is required to deposit the retained funds in an interest-bearing account the interest of which is payable to the contractor upon completion and final payment.

• See: According to Michigan law, who owns the interest earned on retainage, the contractor or the owner?

Note, this is not required if the retainage funds are provided under a state or federal grant and the retained funds have not been paid to the public entity.

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

No, there is no notice required to secure the right to recover retainage withheld on Michigan public projects. Sending a prompt payment demand letter along with a notice of intent to make a bond claim is a good place to start.

Note, that a preliminary notice is required under certain circumstances to make a claim against the payment bond on public projects in Michigan.

How can I make a claim to recover retainage on Michigan public projects?

The Michigan retainage statute for public projects doesn’t specify how a claim for retainage can be brought. However, retainage can be included in a public payment bond claim, a claim under Michigan’s’ Prompt Payment Act, and also claims pursuant to the contract between the parties.

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Michigan Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Michigan’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. Michigan’s specific laws can be found under Mich. Comp. Laws §125.1563, and is reproduced below, updated as of April 2021.

Retainage Statute on Private Projects

N/A.

Michigan state law does not provide a specific retainage statute for private projects.

Retainage Statute on Public Projects

§ 125.1563. Retaining portion of each progress payment to assure proper performance of construction contract; retainage; limitations; exceeding pro rata share of public agency's matching requirement; commingling and deposit of retained funds; releasing to contractor retainage and interest earned on retainage; irrevocable letter of credit.

(1) To assure proper performance of a construction contract by the contractor, a public agency may retain a portion of each progress payment otherwise due as provided in this section.

(2) The retainage shall be limited to the following:

(a) Not more than 10% of the dollar value of all work in place until work is 50% in place.

(b) After the work is 50% in place, additional retainage shall not be withheld unless the public agency determines that the contractor is not making satisfactory progress, or for other specific cause relating to the contractor’s performance under the contract. If the public agency so determines, the public agency may retain not more than 10% of the dollar value of work more than 50% in place.

(3) The retained funds shall not exceed the pro rata share of the public agency’s matching requirement under the construction contract and shall not be commingled with other funds of the public agency and shall be deposited in an interest bearing account in a regulated financial institution in this state wherein all such retained funds are kept by the public agency which shall account for both retainage and interest on each construction contract separately. A public agency is not required to deposit retained funds in an interest bearing account if the retained funds are to be provided under a state or federal grant and the retained funds have not been paid to the public agency.

(4) Except as provided in section 4(7) and (8), retainage and interest earned on retainage shall be released to a contractor together with the final progress payment.

(5) At any time after 94% of work under the contract is in place and at the request of the original contractor, the public agency shall release the retainage plus interest to the original contractor only if the original contractor provides to the public agency an irrevocable letter of credit in the amount of the retainage plus interest, issued by a bank authorized to do business in this state, containing terms mutually acceptable to the contractor and the public agency.

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