North Carolina Retainage Guide and FAQs

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North Carolina Retainage FAQs

North Carolina Retainage Overview

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

Retainage 5% Icon
5 Percent

Retainage not allowed on projects under $100,000. Otherwise, retainage is limited to 5% until 50% completion of the project.


Payment Period 60 Days Icon
60 Day Pay Period

Retainage must be released within 60 days of completion. The prime contractor must pay their subcontractors within 7 days of receipt of payment.


YES
PROCESS
There is a Process to Recover

Yes, a request must be made by the direct contractor to the owner, and owner must receive certificate of substantial completion.

Retainage, also called “retention,” is an amount of money “held back” from a contractor ir 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 frequently asked questions about North Carolina’s retainage requirements. The North Carolina retainage statutes are reproduced below on this page.

North Carolina’s retainage limits and deadlines

North Carolina’s retainage statutes only apply to public works projects valued at over $100,000. Public works projects valued at less are not allowed to withhold retainage. On private projects within the state, retainage will be governed by the terms of the contract.

Retainage on such public projects is capped at 5% of each progress payment. Upon 50% completion, retainage must no longer be withheld unless the job progress is unsatisfactory.

The public entity is required to release retainage within 60 days of receipt of the pay request and a certificate of substantial completion, or beneficial use by the public entity is received.

North Carolina Retainage Frequently Asked Questions

North Carolina Retainage Private Projects FAQs

What types of private projects are governed by North Carolina’s retainage laws?

North Carolina does not regulate retainage practices on private construction projects within the state.

Does North Carolina limit the amount of retainage that can be withheld?

Since North Carolina doesn’t regulate retainage on private projects, the amount to be withheld, if any, will be determined by the terms of the contract.

How long can a party withhold retainage in North Carolina?

There is no specific deadline for the release of retainage on private projects in North Carolina. The release of retainage by the property owner will be determined by the prime contract. Furthermore, under North Carolina’s prompt payment laws, contractors/subcontractors are required to make payments to subcontractors and suppliers within 7 days of receipt of payment from the higher-tiered party.

• See the answer to this NC subcontractor’s question: Does GC make retainage invoices or do subcontractors need to send one at the end of job?

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

There is no specific requirement for retainage to be deposited in any special account. As far as substitution of securities, this will be determined by the terms of the contract.

Read more: Retention Bonds- An Alternative to Waiting for Retainage

How can I make a claim to recover retainage in North Carolina?

No method had been specified for the recovery of retainage in North Carolina. Presumably, other collections tools – like filing a mechanics lien claim, claims under the North Carolina Prompt Payment Act, or pursuing contract claims are available to recover retainage payments.

Is there a specific notice required to recover retainage in North Carolina?

There is no special notice for the recovery of retainage on North Carolina private projects.

Sending a Prompt Payment Demand Letter and a Notice of Intent to Lien is a good place to start. Keep in mind that NC mechanics liens may require their own notices.

• See: North Carolina Preliminary Notice Overview & FAQs

North Carolina Retainage Public Projects FAQs

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

The retainage laws apply to all public works projects in North Carolina valued at $100,000 or more. On public works projects for less than $100,000, retainage is not allowed to be withheld.

See: If working on a military base, are the retainage laws different than the state laws?

Does North Carolina limit the amount of retainage that can be withheld?

Retainage is limited to 5% of each progress payment until 50% completion of the project. Upon 50% completion, retainage will not be withheld from any subsequent payments. If, after the 50% completion mark, the public entity determines that performance is unsatisfactory, retainage can continue to be withheld at no more than 5%.

So when is a project deemed 50% complete?

A project is considered 50% complete when the contractor’s gross project invoices, excluding the value of materials stored offsite, equals or exceeds 50% of the value of the contract; except the value of offsite stored materials can’t exceed 20% of the gross project invoices for the purposes of determining 50% completion.

How long can a party withhold retainage in North Carolina?

Retainage is required to be released by the public entity within 60 days after submission of a pay request, and when one of the following events occur:

• A certificate of substantial completion is issued by the architect, engineer, or designer in charge; or

• The public entity receives beneficial occupancy or use of the improvement.

Additionally, early trades such as “structural steel, piling, caisson, and demolition” who have reached 100% completion of their contracts before the project reaches 50% completion are entitled to full payment including retainage. Payment is contingent upon approval by the project’s architect or engineer.

Note: The public entity may withhold sufficient funds to secure completion of the project or corrections of any work, not to exceed 2.5 times the estimated value of the work to be completed/corrected.

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

Retained funds in North Carolina isn’t required to be deposited in any interest-bearing account. Substitution of securities in lieu of retainage isn’t specified in the statutes.

How can I make a claim to recover retainage in North Carolina?

No method had been specified for the recovery of retainage in North Carolina. Presumably, other collections tools – like filing a bond claim, claims under the North Carolina Prompt Payment Act, or pursuing contract claims are available to recover retainage payments.

Is there a specific notice required to recover retainage in North Carolina?

There is no special notice for the recovery of retainage on North Carolina public works projects. Sending a Prompt Payment Demand Letter and a Notice of Intent to Make a Bond Claim is a good place to start. Keep in mind that NC bond claims may require their own notices.

• See: North Carolina Preliminary Notice Overview & FAQs

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North Carolina Retainage Statutes

Getting informed about prompt payment laws is important. An examination of North Carolina’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. North Carolina’s specific laws can be found in: N.C. Gen. Stat. §143-134.1(b1) and §143-134.1(b1)(2); and are reproduced below. Updated as of 2020.

Retainage Statute on Private Projects

N/A

North Carolina does not provide a specific retainage statute for private projects.

Retainage Statute on Public Projects

§ 143-134.1. Interest on final payments due to prime contractors; payments to subcontractors

(a) On all public construction contracts which are let by a board or governing body of the State government or any political subdivision thereof, except contracts let by the Department of Transportation pursuant to G.S. 136-28.1, the balance due prime contractors shall be paid in full within 45 days after respective prime contracts of the project have been accepted by the owner, certified by the architect, engineer or designer to be completed in accordance with terms of the plans and specifications, or occupied by the owner and used for the purpose for which the project was constructed, whichever occurs first. However, when the architect or consulting engineer in charge of the project determines that delay in completion of the project in accordance with terms of the plans and specifications is the fault of the contractor, the project may be occupied and used for the purposes for which it was constructed without payment of any interest on amounts withheld past the 45 day limit.

No payment shall be delayed because of the failure of another prime contractor on the project to complete his contract. Should final payment to any prime contractor beyond the date the contracts have been certified to be completed by the designer or architect, accepted by the owner, or occupied by the owner and used for the purposes for which the project was constructed, be delayed by more than 45 days, the prime contractor shall be paid interest, beginning on the 46th day, at the rate of one percent (1%) per month or fraction thereof unless a lower rate is agreed upon on the unpaid balance as may be due. In addition to the above final payment provisions, periodic payments due a prime contractor during construction shall be paid in accordance with the provisions of this section and the payment provisions of the contract documents that do not conflict with this section, or the prime contractor shall be paid interest on any unpaid amount at the rate stipulated above for delayed final payments. The interest shall begin on the date the payment is due and continue until the date on which payment is made. The due date may be established by the terms of the contract. Funds for payment of the interest on state-owned projects shall be obtained from the current budget of the owning department, institution, or agency. Where a conditional acceptance of a contract exists, and where the owner is retaining a reasonable sum pending correction of the conditions, interest on the reasonable sum shall not apply.

(b) Within seven days of receipt by the prime contractor of each periodic or final payment, the prime contractor shall pay the subcontractor based on work completed or service provided under the subcontract. If any periodic or final payment to the subcontractor is delayed by more than seven days after receipt of periodic or final payment by the prime contractor, the prime contractor shall pay the subcontractor interest, beginning on the eighth day, at the rate of one percent (1%) per month or fraction thereof on the unpaid balance as may be due.

(b1) No retainage on periodic or final payments made by the owner or prime contractor shall be allowed on public construction contracts in which the total project costs are less than one hundred thousand dollars ($100,000). Retainage on periodic or final payments on public construction contracts in which the total project costs are equal to or greater than one hundred thousand dollars ($100,000) is allowed as follows:

(1) The owner shall not retain more than five percent (5%) of any periodic payment due a prime contractor.

(2) When the project is fifty percent (50%) complete, the owner, with written consent of the surety, shall not retain any further retainage from periodic payments due the contractor if the contractor continues to perform satisfactorily and any nonconforming work identified in writing prior to that time by the architect, engineer, or owner has been corrected by the contractor and accepted by the architect, engineer, or owner. If the owner determines the contractor’s performance is unsatisfactory, the owner may reinstate retainage for each subsequent periodic payment application as authorized in this subsection up to the maximum amount of five percent (5%). The project shall be deemed fifty percent (50%) complete when the contractor’s gross project invoices, excluding the value of materials stored off-site, equal or exceed fifty percent (50%) of the value of the contract, except the value of materials stored on-site shall not exceed twenty percent (20%) of the contractor’s gross project invoices for the purpose of determining whether the project is fifty percent (50%) complete.

(3) A subcontract on a contract governed by this section may include a provision for the retainage on periodic payments made by the prime contractor to the subcontractor. However, the percentage of the payment retained:

(i) shall be paid to the subcontractor under the same terms and conditions as provided in subdivision (2) of this subsection and

(ii) subject to subsection (b3) of this section, shall not exceed the percentage of retainage on payments made by the owner to the prime contractor. Subject to subsection (b3) of this section, any percentage of retainage on payments made by the prime contractor to the subcontractor that exceeds the percentage of retainage on payments made by the owner to the prime contractor shall be subject to interest to be paid by the prime contractor to the subcontractor at the rate of one percent (1%) per month or fraction thereof.

(4) Within 60 days after the submission of a pay request and one of the following occurs, as specified in the contract documents, the owner with written consent of the surety shall release to the contractor all retainage on payments held by the owner:

(i) the owner receives a certificate of substantial completion from the architect, engineer, or designer in charge of the project; or

(ii) the owner receives beneficial occupancy or use of the project. However, the owner may retain sufficient funds to secure completion of the project or corrections on any work. If the owner retains funds, the amount retained shall not exceed two and one-half times the estimated value of the work to be completed or corrected. Any reduction in the amount of the retainage on payments shall be with the consent of the contractor’s surety.

(5) The existence of any third-party claims against the contractor or any additive change orders to the construction contract shall not be a basis for delaying the release of any retainage on payments.

(b2) Full payment, less authorized deductions, shall also be made for those trades that have reached one hundred percent (100%) completion of their contract by or before the project is fifty percent (50%) complete if the contractor has performed satisfactorily. However, payment to the early finishing trades is contingent upon the owner’s receipt of an approval or certification from the architect of record or applicable engineer that the work performed by the subcontractor is acceptable and in accordance with the contract documents. At that time, the owner shall reduce the retainage for such trades to five-tenths percent (0.5%) of the contract. Payments under this subsection shall be made no later than 60 days following receipt of the subcontractor’s request or immediately upon receipt of the surety’s consent, whichever occurs later. Early finishing trades under this subsection shall include structural steel, piling, caisson, and demolition. The early finishing trades for which line-item release of retained funds is required shall not be construed to prevent an owner or an owner’s representative from identifying any other trades not listed in this subsection that are also allowed line-item release of retained funds. Should the owner or owner’s representative identify any other trades to be afforded line-item release of retainage, the trade shall be listed in the original bid documents. Each bid document shall list the inspections required by the owner before accepting the work, and any financial information required by the owner to release payment to the trades, except the failure of the bid documents to contain this information shall not obligate the owner to release the retainage if it has not received the required certification from the architect of record or applicable engineer.

(b3) Notwithstanding subdivisions (2) and (3) of subsection (b1) of this section, and subsection (b2) of this section, following fifty percent (50%) completion of the project, the owner shall be authorized to withhold additional retainage from a subsequent periodic payment, not to exceed five percent (5%) as set forth in subdivision (1) of subsection (b1) of this section, in order to allow the owner to retain two and one-half percent (2.5%) total retainage through the completion of the project. In the event that the owner elects to withhold additional retainage on any periodic payment subsequent to release of retainage pursuant to subsection (b2) of this section, the general contractor may also withhold from the subcontractors remaining on the project sufficient retainage to offset the additional retainage held by the owner, notwithstanding the actual percentage of retainage withheld by the owner of the project as a whole.

(b4) Neither the owner’s nor contractor’s release of retainage on payments as part of a payment in full on a line-item of work under subsection (b2) of this section shall affect any applicable warranties on work done by the contractor or subcontractor, and the warranties shall not begin to run any earlier than either the owner’s receipt of a certificate of substantial completion from the architect, engineer, or designer in charge of the project or the owner receives beneficial occupancy.

(b5) The State or any political subdivision of the State may allow contractors to bid on bonded projects with and without retainage on payments.

(b6) Nothing in subsections (b1), (b2), (b3), and (b4) of this section shall operate to prevent any agency or any political subdivision of the State from complying with the requirements of a federal contract or grant when the requirements of the federal contract or grant conflict with subsections (b1), (b2), (b3), or (b4) of this section. Each bid document must specify when federal preemption of this section shall apply.

(c) Repealed by Session Laws 2007-365, s. 1, effective January 1, 2008.

(d) Nothing in this section shall prevent the prime contractor at the time of application and certification to the owner from withholding application and certification to the owner for payment to the subcontractor for unsatisfactory job progress; defective construction not remedied; disputed work; third party claims filed or reasonable evidence that claim will be filed; failure of subcontractor to make timely payments for labor, equipment, and materials; damage to prime contractor or another subcontractor; reasonable evidence that subcontract cannot be completed for the unpaid balance of the subcontract sum; or a reasonable amount for retainage not to exceed the initial percentage retained by the owner.

(e) Nothing in this section shall prevent the owner from withholding payment to the contractor in addition to the amounts authorized by this section for unsatisfactory job progress, defective construction not remedied, disputed work, or third-party claims filed against the owner or reasonable evidence that a third-party claim will be filed.

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