New Jersey Retainage Guide and FAQs

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New Jersey Retainage FAQs

New Jersey Retainage Overview

New Jersey 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

Not specified


No Escrow Icon
Not Held In Escrow

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

Retainage 5% Icon
5 Percent

For highway, county, and municipal projects, retainage rate is set at 2%. For education projects, retainage set at 5% if there is no performance bond on the project.


Payment Period 45 Days Icon
45 Day Pay Period

Retainage must be released to the contractor within 45 days of final acceptance date.


NO
PROCESS
There's No Process to Recover

Not specified

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

New Jersey Retainage Frequently Asked Questions

New Jersey Retainage Private Projects FAQs

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

Not specified in the statute.

How long can a party withhold retainage in New Jersey?

Not specified in the statute.

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

Not specified in the statute.

How can I make a claim to recover retainage in New Jersey?

Not specified in the statute.

Is there a specific notice required to recover retainage in New Jersey?

Not specified in the statute.

New Jersey Retainage Public Projects FAQs

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

For highway projects, retainage rate is set at 2%. Once project is substantially complete, only 1% is allowed to be withheld. If the project is not satisfactorily progressing, the retainage rate may be raised to 4%.

For county and municipal projects, retainage rate is set at 2%. Once the project is substantially complete, only 1% is allowed to be withheld.

For education projects, retainage set at 5% if there is no performance bond on the project. If there is a performance bond on the project, the retainage rate is based on the outstanding contract balance: if the balance is greater than $500,000, retainage rate is 2%; if less than $500,000, the retainage rate is 5%

How long can a party withhold retainage in New Jersey?

Retainage must be released to the contractor within 45 days of final acceptance date.

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

Securities may be substituted.

How can I make a claim to recover retainage in New Jersey?

Not specified in statute.

Is there a specific notice required to recover retainage in New Jersey?

Not specified in statute.

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New Jersey Retainage Statute FAQs

Getting informed about prompt payment laws is important. An examination of New Jersey’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. New Jersey’s specific laws can be found in: N.J. Stat. Ann. § 27:7-34, § 40A:11-16.3 and § 18A:18A-40.3, and are reproduced below.

Retainage Statute on Private Projects

N/A

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

Retainage Statute on Public Projects

§ 27:7-34: Partial and deferred payments for highway work; amount; deposit

Contracts shall provide for partial payments at least once each month or from time to time as the work progresses on work of construction or maintenance. Two per centum of the amount due on partial payments of the total contract price shall be withheld from the contractor pending completion of the contract, but upon substantial completion of the contract, as defined by rules or regulations of the department 1% shall be withheld. At any time during the performance of the work, if work is not progressing, as defined by the “New Jersey Department of Transportation Standard Specifications for Road and Bridge Construction,” the commissioner may at the commissioner’s discretion, increase the withholding to 4% of the payment due. No retainage shall be withheld on service contracts including, but not limited to, mowing, sweeping, tree trimming and similar contracts. Any partial payments made after substantial completion of the contract shall be made only upon certification by the general contractor to the department that all subcontractors have been paid in the same proportion that he has been paid; however, should the amount owed by a general contractor to a subcontractor be in dispute the department shall be empowered to advance to the general contractor the amount in dispute after a determination by the commissioner.

Contracts may also provide for partial payments at least once in each month or from time to time as the work progresses on all materials placed along or upon the site, or stored at locations approved by the commissioner, which are suitable for the use and execution of the contract, provided the contractor furnishes releases of liens for all materials furnished at the time each estimate of work is submitted for payment, but such partial payments shall not exceed the cost of the material.

When the contract provides that a portion of the work may be deferred with the approval of the commissioner, the sum withheld from the contractor may not be less than 25% of the value of said work.

Any money heretofore or hereafter withheld from contract payments as provided for herein shall be paid by the State to any contractor entitled thereto who shall deposit under terms of an escrow agreement, in a banking institution located in this State and approved by the commissioner, negotiable bonds, acceptable to the commissioner, issued by the State or any political subdivision thereof, said bonds having value equal to the amount of money to be paid to any such contractor. For purposes of this section, value shall mean par value or market value, whichever is lower.

§ 40A:11-16.3: Withholding of Payments

a. With respect to any contract entered into by a contracting unit pursuant to section 1 of P.L.1979, c.464 (C.40A:11-16.2) for which the contractor shall agree to the withholding of payments pursuant to P.L.1979, c.152 (C.40A:11-16.1), 2% of the amount due on each partial payment shall be withheld by the contracting unit pending completion of the contract.

b. Upon acceptance of the work performed pursuant to the contract for which the contractor has agreed to the withholding of payments pursuant to subsection a. of this section, all amounts being withheld by the contracting unit shall be released and paid in full to the contractor within 45 days of the final acceptance date agreed upon by the contractor and the contracting unit, without further withholding of any amounts for any purpose whatsoever, provided that the contract has been completed as indicated. If the contracting unit requires maintenance security after acceptance of the work performed pursuant to the contract, such security shall be obtained in the form of a maintenance bond. The maintenance bond shall be no longer than two years and shall be no more than 100% of the project costs.

§ 18A:18A-40.3: Withholding of partial payments

With respect to any contract entered into by a board of education pursuant to section 1 of P.L.1987, c.343 (C.18A:18A-40.1) for which the contractor shall agree to the withholding of payments pursuant to section 2 of P.L.1987, c.343 (C.18A:18A-40.2), 5% of the amount due on each partial payment shall be withheld by the board of education pending completion of the contract if the contractor does not have a performance bond. If the contractor does have a performance bond, 2% of the amount due on each partial payment shall be withheld by the board of education when the outstanding balance of the contract exceeds $ 500,000, and 5% of the amount due on each partial payment shall be withheld by the board of education when the outstanding balance of the contract is $ 500,000 or less.

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