Tennessee Retainage Guide and FAQs

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Tennessee Retainage FAQs

Tennessee Retainage Requirements


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5% Retainage Limit

Retainage cannot exceed 5%.


90
DAYS
90 Day Pay Period

The owner must release retainage to the original contractor within 90 days from substantial completion. Contractors must release retainage to their subcontractors within 10 days of the owner releasing retainage to the contractor.


NO
PROCESS
There's No Process to Recover

Not specified


Escrow Icon
Held In Escrow

In Tennessee, contractors and owners need to hold retainage funds in a separate escrow account.

Retainage 5% Icon
5 Percent

Retainage cannot exceed 5%.


90
DAYS
90 Day Pay Period

Retainage must be released to the original contractor within 90 days of substantial completion. Upon receipt of retainage, contractor must release retainage to subcontractors within 10 days.


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

Tennessee Retainage Frequently Asked Questions

Tennessee Retainage Private Projects FAQs

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

Retainage is limited to not more than 5% on all projects.

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Tennessee Retainage FAQs
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Tennessee Retainage FAQs
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How long can a party withhold retainage in Tennessee?

Retainage must be released to the original contractor within 90 days from substantial completion. Funds withheld by the original contractor must be released to subcontractors within 10 days of the date on which the funds withheld from the original contractor are released to it.

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Tennessee Retainage FAQs
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Tennessee Retainage FAQs
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Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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Does Tennessee require retained funds be deposited in a special account? Can securities be substituted for retainage?

Withheld retainage must be kept in an interest bearing, escrow account. If the owner or prime contractor withholds retainage that is for the use and benefit of the prime contractor or its subcontractor, neither the prime contractor nor any of its subcontractors will be required to deposit additional retained funds into an escrow account. Securities may be substituted for retainage.

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Tennessee Retainage FAQs
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Tennessee Retainage FAQs
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Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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How can I make a claim to recover retainage in Tennessee?

This is not specified for private projects in the Tennessee retainage statute.

Summary
Tennessee Retainage FAQs
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Tennessee Retainage FAQs
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Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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Is there a specific notice required to recover retainage in Tennessee?

This is not specified for private projects in the Tennessee retainage statute.

Summary
Tennessee Retainage FAQs
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Tennessee Retainage FAQs
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Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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Tennessee Retainage Public Projects FAQs

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

Retainage is limited to no more than 5% on all projects.

Summary
Tennessee Retainage FAQs
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Tennessee Retainage FAQs
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Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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How long can a party withhold retainage in Tennessee?

Retainage must be released to the original contractor within 90 days from substantial completion of work. Funds withheld by original contractors must be released to subcontractors within 10 days of the date on which the funds withheld from the original contractor are released to it.

Summary
Tennessee Retainage FAQs
Article Name
Tennessee Retainage FAQs
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Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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Does Tennessee require retained funds be deposited in a special account? Can securities be substituted for retainage?

Withheld retainage must be kept in an interest bearing account.  Securities may be substituted for retainage.

Summary
Tennessee Retainage FAQs
Article Name
Tennessee Retainage FAQs
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Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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How can I make a claim to recover retainage in Tennessee?

This is not specified for public projects in the Tennessee retainage statute.

Summary
Tennessee Retainage FAQs
Article Name
Tennessee Retainage FAQs
Description
Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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Levelset
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Is there a specific notice required to recover retainage in Tennessee?

This is not specified for public projects in the Tennessee retainage statute.

Summary
Tennessee Retainage FAQs
Article Name
Tennessee Retainage FAQs
Description
Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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Levelset
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Tennessee Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Tennessee’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. Tennessee’s specific laws can be found in: Tenn. Code Ann. § 4-15-102; § 66-34-103 to 104, § 12-4-108; and are reproduced below. Updated 2022.

Retainage Statute on Private & Public Projects

§ 4-15-102. Powers and duties

(a) The commission has the power and authority, except as otherwise provided in this chapter, to approve and supervise all projects involving:

(1) Any improvement to real property funded by public or private funds or both in which the state or any of its departments, institutions or agencies has an interest;

(2) The demolition of any building or structure located on real property in which the state or any of its departments, institutions or agencies has an interest, or the demolition of any building or structure by a foundation created for the primary purpose of benefiting the University of Tennessee or any institution of the state university and community college system of Tennessee, provided such building or structure when constructed or acquired was originally approved by the commission pursuant to this section, except for the demolition of any building or structure acquired by the department of transportation for highway rights-of-way; and

(3) Any improvement to real property in excess of five hundred thousand dollars ($500,000) by a foundation created for the primary purpose of benefiting the University of Tennessee or any institution of the state university and community college system of Tennessee, the operation of which will be, or is intended by the foundation to be or become, the responsibility of the University of Tennessee or any institution of the state university and community college system of Tennessee. The intent of the foundation to retain operation of the improvement or to transfer operations to the state shall be contained in the records of the foundation.

(b)

(1) No contract for the improvement of real property in which the state or any of its departments, institutions or agencies has an interest, and no contract for the demolition of any building or structure on real property in which the state or any of its departments, institutions or agencies has an interest shall be awarded until the plans therefor have been submitted to and approved by the commission.

(2) This subsection (b) shall not apply to the demolition of any building or structure acquired by the department of transportation for highway rights-of-way.

(3) This subsection (b) shall apply to improvements or demolitions of any building or structure approved by the commission pursuant to this section by a foundation created for the primary purpose of benefiting the University of Tennessee or any institution of the state university and community college system of Tennessee.

(c)

(1)

(A) The commission, using procedures that promote competition to the greatest extent possible, has the power and authority to advertise and award contracts relating to the projects described in subsection (a), including contracts for construction, erection or demolition and contracts to furnish, install or provide goods or materials that are incidental to projects that are within the jurisdiction of the commission.

(B) The commission also has the power and authority to award contracts for professional design, surveying or planning services relating to the projects described in subsection (a), following procedures of the commission.

(C) This subsection (c) shall not apply to contracts made by the department of transportation pursuant to title 54, chapter 5.

(2) Any rule, regulation, specification or policy of the commission promulgated pursuant to this subsection (c) that restricts eligibility to bid on a project to the manufacturer of the material to be utilized in such project shall be waived, if in the discretion of the commission:

(A) The person, company, corporation or other entity submitting a bid offers a warranty or guarantee substantially equivalent to the warranty or guarantee offered by the manufacturer; and

(B) The person, company, corporation or other entity submitting such bid is financially capable of performing such warranty or guarantee.

(d)

(1) The following transactions shall be subject to approval by the state building commission, in addition to the other approvals required by law:

(A) The acquisition of any interest in real property by the state or any of its departments, institutions or agencies, except for the acquisition of any interest in real property by the department of transportation for highway rights-of-way;

(B) The disposal of any interest in surplus real property described in § 12-2-112; provided, that:

(i) The commission may establish policies that permit the disposal, without approval by the commission, of interests in surplus real property other than the fee interest, including, but not limited to, leases, easements and rights-of-way; and

(ii) Such policies that permit the disposal of any interest, without the approval by the commission, shall not include disposal or conveyance in any manner of any interest or rights in minerals, coal, natural gas, oil, timber and any other energy related resources;

(C) All leases described in § 12-2-115(b); and

(D) All leases or other contracts that may involve the use of private funds for the proposed construction and that relate to improvements to real property in which the state or any of its departments, institutions or agencies have an interest.

(2) Notwithstanding any other law to the contrary, subdivision (d)(1) shall not apply to the University of Tennessee and the state university and community college system of Tennessee in the acquisition and disposal of any interest in real property acquired by gift or devise, unless the acquisition of any interest in real property by gift or devise obligates the University of Tennessee, the state university and community college system of Tennessee, or the state to expend state funds for capital improvements or continuing operating expenditures. Furthermore, information on such gift property will be filed with the commission.

(e)

(1) It is the duty of the office of legislative services to notify each member of the general assembly who requests such notification of any particular project to be considered by the commission, which project is proposed to be located within the district represented by the particular senator or representative.

(2) Such notification shall be given by mail not less than five (5) days prior to the commission meeting at which the subject project will be considered, unless it is an emergency meeting of the commission, in which case notification shall be made to the legislators as quickly as feasible.

(f)

(1) The commission may award and approve contracts that provide for retainage as follows: not more than ninety-five percent (95%) of the contract price shall be paid on any contract until it is completed and the work is accepted; provided, that such contracts are with reputable building contractors who are principally located within this state and who have demonstrated by past experience their ability to properly perform equivalent building construction or improvement projects, whether public or private.

(2)

(A) Prior to the execution of any such contract in excess of one hundred thousand dollars ($100,000), the commission shall require the execution of a good and solvent corporate surety payment and performance bond in an amount to be determined by the commission.

(B) Such bond shall be sufficient in amount to secure the faithful and satisfactory completion of the state building or improvement project and payment for all labor and materials used by the contractor, or any immediate or remote subcontractor under the contract.

(3) Any damages caused by a building contractor for failure to complete the contract or by failing to satisfactorily complete the work shall be recoverable by the state in an action against the building contractor and the building contractor’s sureties.

(g) Full settlement may be made with the contractor after the following have occurred:

(1) The contractor shall furnish evidence to satisfy the commission that all the material used by the contractor, the contractor’s subcontractors or the contractor’s agents has been fully paid for and all laborers and other employees working for the contractor, the contractor’s subcontractors, or the contractor’s agents have been fully paid; and

(2) Within ten (10) days after receipt of evidence requested in subdivision (g)(1), the commission shall provide thirty (30) days notice in some newspaper published in the county where the work is done, if there is a newspaper published there, and if not, in a newspaper in an adjoining county, that settlement is about to be made and notifying all claimants to file notice of their claims with the commission, and the period for filing shall not be less than thirty (30) days after the last published notice.

(h) Except as provided in chapter 13, part 1 of this title, this chapter shall have no application to property conveyed in trust to a private corporation organized and chartered under the laws of this state pursuant to § 4-13-101.

(i) Whenever the commissioner of education is authorized by the state board of education to take responsibility for the operation of any local school system or school that has been placed on probation pursuant to title 49, chapter 1, part 6, the state building commission shall have the same authority granted by this chapter relative to state agencies for all expenditures of educational capital outlay funds for such local school system or school.

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Tennessee Retainage FAQs
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§ 66-34-103. Withholding of retainage - Violations - Penalties

(a) All construction contracts on any project in this state, both public and private, may provide for the withholding of retainage; provided, however, that the retainage amount may not exceed five percent (5%) of the amount of the contract.

(b) The owner, whether public or private, shall release and pay all retainages for work completed pursuant to the terms of any contract to the prime contractor within ninety (90) days after completion of the work or within ninety (90) days after substantial completion of the project for work completed, whichever occurs first. As used in this subsection (b), “work completed” means the completion of the scope of the work and all terms and conditions covered by the contract under which the retainage is being held. The prime contractor shall pay all retainages due any remote contractor within ten (10) days after receipt of the retainages from the owner. Any remote contractor receiving the retainage from the prime contractor shall pay to any lower-tier remote contractor all retainages due the lower-tier remote contractor within ten (10) days after receipt of the retainages.

(c) Any default in the making of the payments is subject to those remedies provided in this part.

(d) If an owner or prime contractor withholds retainage that is for the use and benefit of the prime contractor or its remote contractors pursuant to § 66-34-104(a) and (b), then neither the prime contractor nor any of its remote contractors are required to deposit additional retained funds into an escrow account in accordance with § 66-34-104(a) and (b).

(e)

(1) It is an offense for a person, firm, or corporation to fail to comply with subsection (a) or (b) or § 66-34-104(a).

(2)

(A) A violation of this subsection (e) is a Class A misdemeanor, subject to a fine only of three thousand dollars ($3,000).

(B) Each day a person, firm, or corporation fails to comply with subsection (a) or (b) or § 66-34-104(a) is a separate violation of this subsection (e).

(C) Until the violation of this subsection (e) is remediated by compliance, the punishment for each violation is consecutive to all other violations.

(3) In addition to the fine imposed pursuant to subdivisions (e)(2)(A) and (B), the court shall order restitution be made to the owner of the retained funds. In determining the appropriate amount of restitution, the formula stated in § 40-35-304 must be used.

(4) This subsection (e) does not apply to the state, any department, board, or agency thereof, including the University of Tennessee, all counties and municipalities, and all departments, boards, or agencies thereof, including all school and education boards, and any other subdivision of the state.

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Tennessee Retainage FAQs
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§ 66-34-104. Retention of portion of contract price in escrow - Applicability - Mandatory compliance

(a) Whenever, in any contract for the improvement of real property, a certain amount or percentage of the contract price is retained, that retained amount must be deposited in a separate, interest-bearing, escrow account with a third party which must be established upon the withholding of any retainage.

(b) As of the time of the withholding of the retained funds, the funds become the sole and separate property of the prime contractor or remote contractor to whom they are owed, subject to the rights of the person withholding the retainage in the event the prime contractor or remote contractor otherwise entitled to the funds defaults on or does not complete its contract.

(c) If the party withholding the retained funds fails to deposit the funds into an escrow account as provided in this section, then the party shall pay the owner of the retained funds an additional three hundred dollars ($300) per day as damages, not as a penalty, for each and every day that the retained funds are not deposited into an escrow account. Damages accrue from the date retained funds were first withheld and continue to accrue until placed into a separate, interest-bearing escrow account or otherwise paid.

(d) The party with the responsibility for depositing the retained amount in a separate, interest-bearing escrow account with a third party has the affirmative duty to provide written notice that the party has complied with this section to any prime contractor upon withholding the amount of retained funds from each and every application for payment, including:

(1) Identification of the name of the financial institution with which the escrow account has been established;

(2) Account number; and

(3) Amount of retained funds that are deposited in the escrow account with the third party.

(e) Upon satisfactory completion of the contract, to be evidenced by a written release by the owner, prime contractor, or remote contractor owing the retainage, all funds accumulated in the escrow account together with all interest on the account must be paid immediately to the prime contractor or remote contractor to whom the funds and interest are owed.

(f) If the owner, prime contractor, or remote contractor, as applicable, fails or refuses to execute the release provided for in subsection (e), then the prime contractor or remote contractor, as applicable, may seek equitable relief, including injunctive relief, as provided in § 66-34-602, against the owner, prime contractor, or remote contractor. Relief may not be sought against the person holding the retainage as an escrow agent, and that person bears no liability for the nonpayment of the retainage; however, a court may issue an order to the person holding retainage to pay any sums held in trust pursuant to § 66-34-205. The person paying the sums pursuant to a court order bears no liability to the owner, prime contractor, or remote contractor for the payment. All other claims, demands, disputes, controversies, and differences that may arise between the owner, prime contractor, or prime contractors, and remote contractors may be, upon written agreement of all parties concerned, settled by arbitration conducted pursuant to the Uniform Arbitration Act, compiled in title 29, chapter 5, part 3, or the Federal Arbitration Act ( 9 U.S.C. § 1 et seq.), as may be applicable.

(g) Subsections (c), (d), and (j) do not apply to the state and any department, board, or agency thereof, including the University of Tennessee; counties and municipalities, and all departments, boards, or agencies thereof, including all school and education boards; and any other subdivision of the state.

(h) This section applies to all prime contracts and all subcontracts thereunder for the improvement of real property when the contract amount of the prime contract is five hundred thousand dollars ($500,000) or greater, notwithstanding the amount of the subcontracts.

(i) Compliance with this section is mandatory, and shall not be waived by contract.

(j) Failure to deposit the retained funds into an escrow account as provided in this section, within seven (7) days of receipt of written notice regarding the failure, is a Class A misdemeanor.

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Tennessee Retainage FAQs
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Tennessee Retainage FAQs
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§ 12-4-108. Withdrawal of retained funds - Contractors

(a) Any construction contractor may, from time to time, withdraw any part, or the whole, of the amount which has been retained from partial payments to the contractor pursuant to the terms of the contract upon the deposit of securities in the manner described in this section.

(b) This section shall require delivery of securities to or in the name of the:

(1) State treasurer for construction contracts entered into by the state, and any agency or department thereof, including the department of transportation, under § 54-5-113; or

(2) Any other appropriate public official named in the contract for construction contracts entered into by the University of Tennessee or any county, municipality, or political subdivision of the state, including, but not limited to, metropolitan government.

(c) The following shall be considered as securities and may be substituted for retained funds:

(1) United States treasury bonds, United States treasury notes, United States treasury bills;

(2) General obligation bonds of the state of Tennessee;

(3) Certificates of deposit or evidence of other deposits irrevocably pledged from a state or national bank having its principal office in Tennessee or a state or federal savings and loan association having its principal office in Tennessee; or

(4) A letter of credit from a state or national bank having its principal office in Tennessee. The terms and conditions of any letter of credit shall be subject to the approval of the public official described in subsection (b). All letters of credit shall be accompanied by an authorization of the contractor to deliver retained funds to the bank issuing the letter.

(d) No retained amount shall be withdrawn which would represent an amount in excess of the market value of the securities at the time of deposit or of the par value of such securities, whichever is lower, or in excess of the maximum amount committed and stated in the letter of credit.

(e) At the time of deposit of the securities, they shall be accompanied by a conditional assignment to the public official described in subsection (b), which will empower the public official to take custody of the security and to negotiate it at any time to the extent necessary to cause the contract to be fulfilled.

(f) In the case of securities deposited with the state treasurer, such securities shall be negotiated by the state treasurer in the event that the state building commission or the commissioner of transportation, whichever is applicable, determines that such is desirable in order to effectuate the timely completion of the project.

(g) So long as securities remain on deposit and the contractor is not in default, all interest and income paid shall go to the contractor, less any custodial care and servicing costs.

(h) The securities which remain on deposit at the time of completion of the contract and satisfaction of any statutory obligations with respect thereto shall be returned to the contractor.

(i) The public official described in subsection (b) shall have the power to enter into a trust agreement with any state or national bank or state or federal savings and loan association or savings bank located in Tennessee for the safekeeping, custodial care and servicing of securities to the extent necessary to effectuate the purposes of this section. The financial institution serving as trustee under such trust agreement shall hold the securities in trust for the purposes of this section and for the use and benefit of the persons entitled to them under the provisions hereof; provided, that the securities held in trust will not be commingled with any securities owned by the financial institution or any third party, but will at all times remain segregated and subject to identification as the particular securities deposited and held in trust for the purposes of this section.

Summary
Tennessee Retainage FAQs
Article Name
Tennessee Retainage FAQs
Description
Summary of Tennessee Retainage requirements and laws for Tennessee construction projects including free forms, FAQs, resources and more.
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