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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  • 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

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, also called “retention,” is an amount “held back” from a contractor or subcontractor during the course of the project. In general, retainage serves two main purposes:

  1. To provide an incentive to the contractor or subcontractor to complete the projects; &
  2. To give the owner/entity some protection against problems such as 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.

New Jersey retainage limits and deadlines

New Jersey’s retainage statutes only apply to certain public works projects. Retainage practices on private projects aren’t regulated in New Jersey, and will therefore be determined by the terms of the contract.

Generally, the amount of retainage that can be withheld on public projects is capped at 2% of each progress payments. On county/municipal projects, retained is reduced to 1% after substantial completion. On State highway projects the rate can range from 2-5%. The release of retainage by the public entity can also range from 30-45 days depending on the project. Upon receipt, retainage should be released to subs and suppliers within 10 days.

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 on private projects?

New Jersey does not regulate retainage practices on private construction projects. Therefore, the amount of retainage withheld, if any, will be determined by the terms of the contract.

How long can a party withhold retainage in New Jersey?

There is no specific deadline for the release of retainage on private projects in New Jersey. The date of release will be determined by the terms of the contract.

However, if not specified by the contract, NJ’s prompt payment laws for private projects require payments to be made to prime contractors within 30 days of billing, and passed on to the next tier within 10 days of receipt.

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

Any requirement to deposit retainage in a special account, or the ability to substitute securities will be determined by the terms of the contract between the parties.

• Dive deeper: Retention Bonds: An Alternative to Waiting for Retainage

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

No method is specified to recover retainage. Other collection tools such as a New Jersey mechanics lien claim, prompt payment claims, or pursuing contract claims are available to recover retainage.

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

No specific notice is required to recover retainage on private projects in New Jersey. Sending a Prompt Payment Demand Letter along with a Notice of Intent to Lien is a good starting point.

Keep in mind, that there are some preliminary notice requirements to make a lien claim in New Jersey.

New Jersey Retainage Public Projects FAQs

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

State highway projects

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%.

• The retainage requirements on state highway projects do not apply to service contracts such as moving, sweeping, tree trimming, etc.

County/municipal projects

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

NJ Board of Education projects

Projects commissioned by the state Board of Education, 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 set at 2%; if less than $500,000, then the retainage rate will be increased to 5%

How long can a party withhold retainage in New Jersey?

County/municipal projects

Retainage must be released to the contractor within 45 days of final acceptance date. Under the prompt payment laws, upon receipt, payments should be released to the subs and suppliers within 10 days of receipt.

All other projects

Timing of the release of retained funds will be governed by the NJ prompt payment statutes. Generally, those requires the public entity to release payment within 30 days of the billing date, and released down the contracting chain within 10 days of receipt.

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

County/municipal projects

There is no specific requirement to deposit withheld funds in any special account. A bond may be substituted in lieu of retainage being withheld.

All other projects

On all other NJ public works projects, retained funds may be required to be deposited under an escrow agreement or in an interest-bearing account. Also, bonds may be deposited in lieu of the withholding of retainage.

• Dive deeper: Retention Bonds: An Alternative to Waiting for Retainage

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

No method has been specified for the recovery of retainage on public projects in New Jersey. Presumably, other collection tools, such as filing a claim against the payment bond, claims under the New Jersey Prompt Payment Act, or pursuing contract claims are available to recover retainage payments.

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

There is no special notice required for the recovery of retainage on New Jersey public works projects. Sending a Prompt Payment Demand Letter along with a Notice of Intent to Make a Bond Claim is a good place to start.

Keep in mind, that there are some preliminary notice requirements to make a claim against a public payment bond in New Jersey.

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New Jersey Retainage Statutes

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. § 40A:11-16.3, § 27:7-34, and § 18A:18A-40.3, which are reproduced below. Updated as of 2020.

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 (Local Government)

§ 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.

Retainage Statute on Public Projects (State Highway)

§ 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.

Retainage Statute on Public Projects (Board of Education)

§ 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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