Pennsylvania Retainage Guide and FAQs

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Pennsylvania Retainage FAQs

Pennsylvania Retainage Overview

Pennsylvania Retainage Requirements


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  • Public Jobs
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Retainage Unregulated Icon
Retainage Limit

Not Regulated by State Law


Payment Period Icon
Pay Period

Retainage must be released by the owner within 30 days of final acceptance of the work.

Within 14 days receipt of payment by the contractor, the contractor must pay all subcontractors due.


NO
PROCESS
There's No Process to Recover

Not specified


No Escrow Icon
Not Held In Escrow

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

Retainage 10% Icon
10 Percent

"Retainage generally cannot exceed 10%. Once more than 50% of the work is complete, retainage cannot exceed 5%.

For Dept. of Gen. Services contracts, retainage cannot exceed 6%. Once more than 50% of the work is complete, retainage cannot exceed 3%.

For highway contracts, retainage cannot exceed 5%. At 50% completion of the project, no additional retainage is allowed."


Payment Period Icon
Pay Period

At 50% completion, if work is satisfactory, half of the withheld funds must be released to the contractor. Upon receipt of request for final payment inspection must commence within 30 days, and retainage released within 45 days of approval.

Within 20 days receipt of payment by the contractor, the contractor must pay all subcontractors due.


NO
PROCESS
There's No Process to Recover

Not specified

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 frequently asked questions about Pennsylvania’s retainage requirements. The Pennsylvania retainage statutes are reproduced below on this page.

Pennsylvania retainage limits and deadlines

Private projects

There is no specific limit on the amount of retainage that can be withheld on a private construction project. Furthermore, there is no prohibition on a contractor withholding retainage even if the property owner is not. However, upon final acceptance of the project, the owner (or contractor as applicable) must release retainage within 30 days. Once received, retainage must be released to subs and suppliers within 14 days of receipt.

Public projects

On public works projects in Pennsylvania, the amount of retainage that can be withheld is generally capped at no more than 10% of each progress payment. When the project reaches 50% completion of the prime contract, if satisfactory progress is being made, the entity must release half of the retainage withheld, and no more than 5% of each remaining progress payment may be withheld.

Upon receipt of a request for final payment from the prime contractor, the public entity must commence final inspection within 30 days, and retainage must be released within 45 days of approval. When a contractor receives retainage payments they must, in turn, release retained to their subs and suppliers within 20 days.

Pennsylvania Retainage Frequently Asked Questions

Pennsylvania Retainage Private Projects FAQs

Does Pennsylvania limit the amount of retainage that can be withheld from contractors on private projects?

Pennsylvania does not limit the amount of retainage that can be withheld on private construction projects. Therefore, the amount to be withheld will be determined by the terms of the contract or subcontract. An important thing to note under PA law, is that contractors may still withhold retainage from their subs and suppliers, even if the property owner is not withholding any retainage.

How long can a party withhold retainage in Pennsylvania on private projects?

Any retainage withheld must be released by the property owner within 30 days of final acceptance of the work. Once received, contractors must release retainage to their subs/suppliers within 14 days of receipt. If the owner is not withholding retainage, then retainage must be released by the contractor within the same 30 days from final acceptance deadline.

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

There are no specific statutory provisions requiring retainage funds to be deposited in any escrow or other interest bearing account.

Regarding the substitution of securities, upon substantial completion, a contractor or subcontractor may request the early release of retainage by posting a maintenance bond for 120% of the amount of retainage being withheld.

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

There is no specific procedure in place to recover withheld retainage in Pennsylvania. However, other collection tools such as a Pennsylvania mechanics lien claim, prompt payment claims, or pursuing claims such as breach of contract are available avenues to recover payment.

For more on these recovery options, see:

• How to File a Pennsylvania Mechanics Lien

• How to Make a Claim Under Prompt Payment Laws

Is there a specific notice required to recover retainage in PA on private projects?

There aren’t any particular notices required to recover retainage on Pennsylvania private construction projects. Sending a prompt payment demand letter along with a notice of intent to lien is a good starting point. But keep in mind that there are some preliminary notice requirements that must be met in order to make a valid lien claim in Pennsylvania.

Pennsylvania Retainage Public Projects FAQs

Does Pennsylvania limit the amount of retainage that can be withheld from contractors on public projects?

In general, if the public works contract provides for retainage, the amount withheld cannot exceed 10% of each progress payment.

For Dept. of Gen. Services contracts, retainage is limited to no more than 6%. Once more than 50% of the work is complete, retainage rate is limited to no more than 3%.

For highway contracts, the retainage rate is limited to no more than 5%.  At 50% completion of the project, no retainage is allowed.

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

Upon 50% completion of the public works contract, the government entity must release half of the amount of retainage withheld. Provided that the work is being completed satisfactorily and the request for the partial release of retainage is approved by the architect or engineer on the project. After 50% completion, the government entity cannot withhold more than 5% on all remaining progress payments.

Final inspection must commence within 30 days of receipt of the contractor’s request for payment. If approved, payment on any remaining retainage must be made within 45 days. Upon receipt, retainage must be released to subcontractors and suppliers within 20 days.

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

There are no specific provisions requiring the withheld funds to be deposited in an escrow account or any other interest bearing account. Thus, the terms of the contract will determine if this is required or not. Similarly, there are no provisions regarding the ability to substitute securities in lieu of retainage.

• See: Retention Bonds: An Alternative to Waiting for Retainage

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

The statutes do not provide for any particular procedure to recover withheld retainage in Pennsylvania. However, other collection tools such as a Pennsylvania payment bond claim, prompt payment claims, or pursuing claims such as breach of contract are available avenues to recover retained payments.

Is there a specific notice required to recover retainage in PA on public projects?

No specific notices are required to recover retainage on public works projects in Pennsylvania. Sending a prompt payment demand letter along with a notice of intent to make a bond claim is a good starting point. However, keep in mind that there may be some preliminary notice requirements to make a claim against the payment bond.

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Pennsylvania Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Pennsylvania’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. Pennsylvania’s specific laws can be found under 73 Pa. Stat. §509 for private projects, 62 PA. Cons. Stat. § 3921 for public projects, and 36 § 746 for highway projects; and are reproduced below. Updated as of January 2021.

Retainage Statute on Private Projects

73 § 509. Retainage

(a) Time for payment.–If payments under a construction contract are subject to retainage, any amounts which have been retained during the performance of the contract and which are due to be released to the contractor upon final completion shall be paid within 30 days after final acceptance of the work.

(a.1) Posting of security in lieu of retainage.–Upon reaching substantial completion of its own scope of work, a contractor or subcontractor may facilitate the release of retainage on its contract before final completion of the project by posting a maintenance bond with approved surety for 120% of the amount of retainage being held.

(b) Agreement between contractor and subcontractor.–If an owner is not withholding retainage, a contractor may withhold retainage from a subcontractor in accordance with their agreement. The retainage shall be paid within 30 days after final acceptance of the work.

(c) Payment of retainage to subcontractors.–A contractor shall pay to the contractor’s subcontractors, and each subcontractor shall in turn pay to the subcontractor’s subcontractors, within 14 days after receipt of the retainage, the full amount due each subcontractor.

(d) Withholding acceptance or failure to pay retainage.– Withholding of retainage for longer than 30 days after final acceptance of the work shall be subject to the obligations imposed upon the owner, contractor or subcontractor in section 6(b) or 11(b). If an owner, contractor or subcontractor unreasonably withholds acceptance of work or fails to pay retainage as required by this section, the owner, contractor or subcontractor shall be subject to the payment of interest at the rate established in section 5(d) on the balance due and owing on the date acceptance was unreasonably withheld or the date the retainage was due and owing, whichever is applicable. The owner, contractor or subcontractor shall also be subject to the provisions of section 12.

Retainage Statute on Public Projects

62 § 3921. Retainage

(a) Contract provision.–A contract may include a provision for the retainage of a portion of the amount due the contractor to insure the proper performance of the contract except that the sum withheld by the government agency from the contractor shall not exceed 10% of the amount due the contractor until 50% of the contract is completed. When the contract is 50% completed, one-half of the amount retained by the government agency shall be returned to the contractor. However, the architect or engineer must approve the application for payment. The contractor must be making satisfactory progress, and there must be no specific cause for greater withholding. The sum withheld by the government agency from the contractor after the contract is 50% completed shall not exceed 5% of the value of completed work based on monthly progress payment requests. In the event a dispute arises between the government agency and any prime contractor, which dispute is based upon increased costs claimed by one prime contractor occasioned by delays or other actions of another prime contractor, additional retainage in the sum of one and one-half times the amount of any possible liability may be withheld until such time as a final resolution is agreed to by all parties directly or indirectly involved unless the contractor causing the additional claim furnishes a bond satisfactory to the government agency to indemnify the agency against the claim. All money retained by the government agency may be withheld from the contractor until substantial completion of the contract.

(b) Department of General Services.–Notwithstanding subsection (a), when the Department of General Services is the government agency, the contract may include a provision for the retainage of a portion of the amount due the contractor to insure the proper performance of the contract except that the sum withheld by the department for the contractor shall not exceed 6% of the then total estimates until 50% of the contract is satisfactorily completed. The sum withheld by the department from the contractor after the contract is 50% satisfactorily completed shall not exceed 3% of the original contract amount.

62 § 3922. Payment of retainage to subcontractors

In the absence of sufficient reason, within 20 days of the receipt of payment by the contractor, the contractor shall pay all subcontractors with which it has contracted their earned share of the payment the contractor received.

36 § 746: Payment or collection of cost of highway; part payments to contractors; interest; securities

(a) The total cost of the improvement and maintenance of the State-aid highways constructed under the provisions of this act, as provided by the terms of the contract, or otherwise as herein provided, when properly certified by the Secretary of Highways, shall be audited by the Auditor General, and when audited and allowed shall be paid out of money specifically appropriated for this purpose, by warrants drawn therefor by the Auditor General upon the State Treasurer.

(b) The share of the county shall be paid as provided by its contract, and, otherwise, by the provisions of this act, to the State Treasurer by the county treasurer, upon the warrant of the county commissioners, in such sum or sums as shall be certified by the Secretary of Highways, from time to time, during the performance of the work or contract, or as provided by the contract, and, otherwise, by the provisions hereof, after the same shall be completed.

(c) The share of the township or townships, or of any borough or boroughs, or of any incorporated town or towns, shall be paid to the State Treasurer by the township supervisors or commissioners, or by the borough treasurer, or by the town treasurer, as the case may be, in the manner and form as in the case of counties, and as other debts of said townships or boroughs are paid, when and as demanded by certificate of the Secretary of Highways during the performance of the work or contract, or, in like manner, after the same shall be completed.

(d) Upon the completion of any State-aid highway improvement, or upon the ascertainment of any additional improvement cost, or of any maintenance expense, incurred thereon thereafter by the Department of Highways, the Secretary of Highways shall certify the same to the State Treasurer, and to the county commissioners and township supervisors, or borough or town authorities, as the case may be, the respective shares of said cost or expense for which the county, township, borough, or incorporated town is liable. If the said shares or amounts, so certified by the Secretary of Highways, of the cost and expense of the improvement, or of the subsequent maintenance thereof, as provided by contract and the provisions of this act, of the county, township, borough, or incorporated town, or all or either of them, shall not be paid to the State Treasurer within thirty days after being certified, then the said shares of the county, township, borough, or incorporated town, either or all of them, remaining unpaid, shall be charged by the State Treasurer against any funds of said county, township, borough, or incorporated town which may be in the hands of the State Treasurer, or which may thereafter come into his hands, excepting school funds, and may also be recovered by action at law or equity as any other debts of such counties, townships, boroughs, or incorporated towns are by law recoverable.

(e) The amounts paid under this act to the State Treasurer by the counties, townships, boroughs, and towns, shall be placed by him to the credit of the proper fund for highway construction or maintenance, and shall immediately be available for the use of the Department of Highways for construction or maintenance, as the case may be; and the Secretary of Highways is hereby authorized and empowered to apportion the said amounts, thus paid into the State Treasury by the counties, townships, boroughs, and incorporated towns, among the several counties as hereinbefore provided for.

(f) The Secretary of Transportation may make partial payments to any contractor performing any highway improvement, under this act, at semimonthly intervals, or more frequently from time to time, as the same progresses, upon estimates made by the Department of Transportation, beginning on the first estimate date established by the department following the date set forth in the notice to proceed or indicated in the special provisions. Five per centum (5%) of the amount due on partial payments or current estimates representing fifty per centum (50%) of the total contract price shall be withheld from the contractor pending completion: Provided, That the secretary may waive the withholding or reduce the amount of retainage if he is otherwise assured that the contract will be completed. Thereafter, no per centum of the amount due on partial payments or current estimates shall be withheld from the contractor pending completion: Provided, That the Secretary of Transportation may, in his discretion, make payments in excess of the percentages withheld when at least ninety-five per centum (95%) of the work contracted has been completed. If any amount is required by the secretary to be retained under this section, the amount retained under said contract for the work done and performed shall in all cases be sufficient to cover the contract price or estimated cost of the work remaining to be done to satisfactorily complete the contract.

(g) Deleted by amendment. 1981, Dec. 22, P.L. 521, No. 145, § 1, imd. effective.

(h) In addition to the payments herein authorized, the Secretary of Highways shall pay to the contractor interest at the rate of five (5) per centum per annum on the amount retained, and on the final payment due the contractor beginning ninety (90) days after the work under the contract has been completed and accepted by the Department of Highways and running until the date when such amount retained and final payment are tendered to the contractor.

(i) At the option of the contractor and in lieu of the payment of any interest as hereinbefore provided in subsection (h), amounts withheld pending completion of any highway improvement under this act may, in whole or in part, be withdrawn by the contractor as soon as such amounts are credited to his account under either of the hereinbefore mentioned methods for making partial and final payments upon depositing with the Secretary of Transportation securities of a market value equal to the amount so withdrawn. Such securities shall be of a character approved by the Secretary of [Highways] Transportation and shall include, but not be limited to, certificates of deposit issued by, or savings accounts in national or state banks authorized to do business in the Commonwealth, savings accounts in savings and loans, savings associations, building and loan associations and Federal savings and loan associations authorized to do business in the Commonwealth, bonds or notes of the United States of America, the Commonwealth of Pennsylvania, or any political subdivision thereof and, upon approval, such certificates of deposit, bonds, notes or other obligations as may be issued by any national or state bank, state savings association or Federal savings and loan association authorized to do business in the Commonwealth, authority, agency or instrumentality created by the United States of America, the Commonwealth of Pennsylvania, or any political subdivision thereof.

The Secretary of Transportation shall, from time to time, collect all interest or income on the securities so deposited and shall pay the same, when and as collected, to the contractor who deposited the securities. If the deposit be in the form of coupon bonds, the coupons as they respectively become due shall be delivered to the contractor. Upon default, the Secretary of Transportation may apply such securities, interest, coupons or income therefrom as may be necessary to correct said default and the contractor shall not be entitled to the balance thereof, if any, until the work remaining to be done under the contract has been satisfactorily completed.

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