Texas Retainage Guide and FAQs

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Texas Retainage FAQs

Texas Retainage Overview

Texas Retainage Requirements


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Retainage 10% Icon
10% Retainage Limit

For work in which a mechanic’s lien may be claimed, the property owner must retain 10%.


Payment Period 30 Days Icon
30 Day Pay Period

The time period to withhold retainage is very complicated and not well defined in Texas law. It appears that 30 days after work is completed retainage must be released.


YES
PROCESS
There is a Process to Recover

Yes, specific notces and timing requirements apply to the recovery of retainage in texas.


No Escrow Icon
Not Held In Escrow

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

Retainage icon
Retainage Amount

For most projects, no specific maximum rate is set out.


Payment Period Icon
Pay Period

Statute is unclear, but it appears to depend on the contract. Most likely released upon completion of work under the contract.


YES
PROCESS
There is a Process to Recover

Yes, while statute is not entirely clear, a notice must be submitted to claim retainage.

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

Texas has very complex rules and requirements surrounding retainage, just like everything else surrounding construction payment. The deadlines for notices and claims with respect to retainage in Texas are tricky, and can be modified by other parties’ actions.

For private projects, the rules that apply to a Texas Notice of Contractual Retainage can be found in § 53-057. This notice is an additional notice requirement separate from the “monthly” notices that must be given by Texas construction participants who do not have a contract directly with the property owner, and separate from actually making a claim on the retained fund. The Notice of Contractual Retainage must be given to the owner (and to the original contractor if there was no direct contractual relation between the original; contractor and the party giving notice):

“not later than the earlier of:
(1) the 30th day after the date the claimant’s agreement providing for retainage is completed, terminated, or abandoned; or
(2) the 30th day after the date the original contract is terminated or abandoned.

So, what this means is that the notice must be provided within 30 days of the end of the claimant’s work, unless the original contract was terminated or abandoned prior to that date, in which case the deadline is shortened to 30 days after the termination or abandonment of the original contract.

This is the only “preliminary” notice required for a claim of lien on the retained funds (although, note that other notices are required for a lien with respect to the other amounts due). Also note that this is a deadline, there is nothing in Texas statute that prohibits sending the Notice of Contractual Retainage at any point prior to that deadline, so it may be sent at the start of the project to make sure that the deadline does not slip by.

In order to have a lien against the retained funds, and make the owner personally liable for their payment, the claimant must give the Notice of Contractual Retainage as set forth above, and file a lien affidavit. The lien affidavit must be filed by either:

not later than the 30th day after the earlier of the date:
a) the work is completed;
b) the original contract is terminated; or
c) the original contractor abandons the project
(if the lien affidavit is solely on contractual retainage)

OR

not later than the earliest of:

(i) the 15th day of the 4th month after the claimant’s last furnishing of labor or materials (3rd month if the project was residential – yes, retainage requirements apply to residential projects, too) (ii) the 40th day after the completion date stated in an affidavit of completion provided the owner sent the claimant notice of an affidavit of completion in the time and manner required; (iii) the 40th day after the date of termination or abandonment of the original contract, if the owner sent the claimant a notice of such termination or abandonment in the time and manner required; or (iv) the 30th day after the date the owner provided the claimant with a written demand (meeting the statutory requirements) for the claimant to file the affidavit claiming a lien.

That’s a lot of tricky information to keep straight to make sure deadlines aren’t missed.

Broken down a bit more simply:

  • If the claim is on retainage only the affidavit of lien may be filed 30 days after the job is done (unless the original contractor was terminated or abandoned the project, in which case the deadline is shorted to 30 days from that date).
  • Otherwise, the affidavit of lien must be filed by the general lien filing deadline (unless an affidavit of completion, notice of termination or abandonment, or a demand to file affidavit of lien is provided to the claimant).

Texas Retainage Frequently Asked Questions

Texas Retainage Private Projects FAQs

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

For work in which a mechanics lien may be claimed, the property owner must retain 10%.

How long can a party withhold retainage in Texas?

The time period to withhold retainage is very complicated and not well defined in Texas law. It appears that 30 days after work is completed retainage must be released.

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

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

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

When claiming retainage, the claimant must give the owner notice of contractual retainage no later than the earlier of: the 30th day after the date the claimant’s agreement providing for retainage is completed, terminated, or abandoned OR the 30th day after the date the original contract is terminated or abandoned. If an owner is required to send a notice to a subcontractor and fails to send the notice, the subcontractor is not required to comply to claim retainage and may claim a lien by filing a lien affidavit.

Is there a specific notice required to recover retainage in Texas?

On or before the 10th day of the termination or abandonment of an original contract, the owner shall give notice to each subcontractor who, before the date of termination or abandonment, has: given notice to the owner provided by this statute or sent to the owner by certified or registered mail a written request for notice of termination or abandonment.

Also, see previous question.

Texas Retainage Public Projects FAQs

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

For most projects, no specific maximum rate is set out.  Claim for retainage in § 2253.076, however, “A claim for retainage in a notice under this subchapter is not valid for an amount greater than the amount of retainage specified in the public work contract between the payment bond beneficiary and the prime contractor or between the payment bond beneficiary and the subcontractor. A claim for retainage is never valid for an amount greater than 10 percent of the amount of that contract.”

How long can a party withhold retainage in Texas?

Statute is unclear but it appears to depend on contractual provisions. Most likely released upon completion of work under the contract.

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

For all contract in which retainage is more than 5% (excepting those under $400,000), the retainage must be placed in an interest bearing account.

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

Must submit a notice to claim retainage. Statute not clear.

Is there a specific notice required to recover retainage in Texas?

See above.

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Texas Retainage Statutes

Getting informed about prompt payment laws is important. An examination of Texas’ 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. Texas’ specific laws can be found in Tex. Prop. Code Ann. §§ 53.101 et seq.Tex. Gov’t Code §§ 2252.0321 through 2252.033; and are reproduced below. Updated as of October 2021.

Retainage Statute on Private Projects

§ 53.101. Required Retainage

(a) During the progress of work under an original contract for which a mechanic’s lien may be claimed and for 30 days after the work is completed, the owner shall retain:

(1) 10 percent of the contract price of the work to the owner; or

(2) 10 percent of the value of the work, measured by the proportion that the work done bears to the work to be done, using the contract price or, if there is no contract price, using the reasonable value of the completed work.

(b) In this section, “owner” includes the owner’s agent, trustee, or receiver.

§ 53.102. Payment Secured By Retainage

The retained funds secure the payment of artisans and mechanics who perform labor or service and the payment of other persons who furnish material, material and labor, or specially fabricated material for any contractor, subcontractor, agent, or receiver in the performance of the work.

§ 53.103. Lien On Retained Funds

A claimant has a lien on the retained funds if the claimant:

(1) sends the notices required by this chapter in the time and manner required; and

(2) except as allowed by Section 53.057(f), files an affidavit claiming a lien not later than the 30th day after the earliest of the date:

(A) the work is completed;

(B) the original contract is terminated; or

(C) the original contractor abandons performance under the original contract.

§ 53.104. Preferences

(a) Individual artisans and mechanics are entitled to a preference to the retained funds and shall share proportionately to the extent of their claims for wages and fringe benefits earned.

(b) After payment of artisans and mechanics who are entitled to a preference under Subsection (a), other participating claimants share proportionately in the balance of the retained funds.

§ 53.105. Owner's Liability For Failure to Retain

(a) If the owner fails or refuses to comply with this subchapter, the claimants complying with Subchapter C or this subchapter have a lien, at least to the extent of the amount that should have been retained from the original contract under which they are claiming, against the house, building, structure, fixture, or improvement and all of its properties and against the lot or lots of land necessarily connected.

(b) The claimants share the lien proportionately in accordance with the preference provided by Section 53.104.

Retainage Statute on Public Projects

§ 2252.031. Definitions

In this subchapter:

(1) “Governmental entity” means:

(A) the state, a county, or a municipality;

(B) a department, board, or agency of the state, a county, or a municipality;

(C) a school district or a subdivision of a school district; or

(D) any other governmental or quasi-governmental authority authorized by statute to make a public works contract.

(2) “Prime contractor” means a person or persons, firm, or corporation contracting with a governmental entity for a public work.

(3) “Public works” includes the construction, alteration, or repair of a public building or the construction or completion of a public work.

(4) “Public works contract payment” means a payment by a governmental entity for the value of labor, material, machinery, fixtures, tools, power, water, fuel, or lubricants used or consumed, ordered and delivered for use or consumption, or specially fabricated for use or consumption but not yet delivered, in the direct performance of a public works contract.

(5) “Retainage” means the percentage of a public works contract payment withheld by a governmental entity to secure performance of the contract.

(6) “Warranty period” means the period of time specified in a contract during which certain terms applicable to the warranting of work performed under the contract are in effect.

§ 2252.032. Retainage

(a) A governmental entity shall:

(1) include in each public works contract a provision that establishes the circumstances under which:

(A) the public works project that is the subject of the contract is considered substantially complete; and

(B) the governmental entity may release all or a portion of the retainage for:

(i) substantially completed portions of the project; or

(ii) fully completed and accepted portions of the project;

(2) maintain an accurate record of accounting for:

(A) the retainage withheld on periodic contract payments; and

(B) the retainage released to the prime contractor for a public works contract ; and

(3) for a public works contract described by Subsection (c), pay any remaining retainage described by Subdivision (2)(A) and the interest earned on the retainage to the prime contractor on completion of the work required to be performed under the contract.

(b) Except as provided by Subsection (i):

(1) if the total value of a public works contract is less than $5 million, a governmental entity may not withhold retainage in an amount that exceeds 10 percent of the contract price and the rate of retainage may not exceed 10 percent for any item in a bid schedule or schedule of values for the project, including materials and equipment delivered on site to be installed;

(2) if the total value of a public works contract is $5 million or more, a governmental entity may not withhold retainage in an amount that exceeds five percent of the contract price and the rate of retainage may not exceed five percent for any item in a bid schedule or schedule of values for the project, including materials and equipment delivered on site to be installed; and

(3) if a public works contract relates to the construction or maintenance of a dam, as that term is defined by Section 423.0045, regardless of the total value of the contract, a governmental entity may not withhold retainage in an amount that exceeds 10 percent of the contract price and the rate of retainage may not exceed 10 percent for any item in a bid schedule or schedule of values for the project, including materials and equipment delivered on site to be installed.

(c) For a competitively awarded contract with a value of $10 million or more, and for a contract that was awarded using a method other than competitive bidding, a governmental entity and prime contractor may agree to deposit in an interest-bearing account the retainage withheld on periodic contract payments.

(d) If, for the purpose of fulfilling an obligation of a prime contractor under a public works contract, the prime contractor enters into a subcontract:

(1) the prime contractor may not withhold from a subcontractor a greater percentage of retainage than the percentage that may be withheld from the prime contractor by the governmental entity under the contract; and

(2) a subcontractor who enters into a contract with another subcontractor to provide labor or materials under the contract may not withhold from that subcontractor a greater percentage of retainage than the percentage that may be withheld from the subcontractor as determined under Subdivision (1).

(e) A governmental entity may not withhold retainage:

(1) after completion of the work required to be performed under the contract by the prime contractor, including during the warranty period; or

(2) for the purpose of requiring the prime contractor, after completion of the work required to be performed under the contract, to perform work on manufactured goods or systems that were:

(A) specified by the designer of record; and

(B) properly installed by the contractor.

(f) On application to a governmental entity for final payment and release of retainage, the governmental entity may withhold retainage if there is a bona fide dispute between the governmental entity and the prime contractor and the reason for the dispute is that labor, services, or materials provided by the prime contractor, or by a person under the direction or control of the prime contractor, failed to comply with the express terms of the contract or if the surety on any outstanding surety bond executed for the contract does not agree to the release of retainage. The governmental entity must provide to the prime contractor written notice of the basis on which the governmental entity is withholding retainage under this subsection. If there is no bona fide dispute between the governmental entity and the prime contractor and neither party is in default under the contract, the prime contractor is entitled to:

(1) cure any noncompliant labor, services, or materials; or

(2) offer the governmental entity a reasonable amount of money as compensation for any noncompliant labor, services, or materials that cannot be promptly cured.

(g) A governmental entity is not required to accept a prime contractor’s offer of compensation under Subsection (f)(2).

(h) Subsection (f) may not be construed to limit either the governmental entity’s or prime contractor’s right to pursue any remedy available under the express terms of the public works contract or other applicable law.

(i) For purposes of this subsection, a project is considered formally approved if the project is the subject of a resolution approving an application for financial assistance adopted by the Texas Water Development Board before September 1, 2019, for any part of the project’s financing. Subsection (b) of this section does not apply to a governmental entity that receives financial assistance under Section 15.432 or 15.472, Water Code, for a project that is formally approved by the Texas Water Development Board or to a governmental entity that is a wholesale water supplier that supplies water to customers in 10 or more counties and is governed by Chapter 49, Water Code. A governmental entity described by this subsection shall deposit in an interest-bearing account the retainage withheld under a public works contract that provides for retainage that exceeds five percent of the periodic contract payments.

(j) This section may not be construed as affecting a governmental entity’s ability to retain certain amounts due under a contract as required by Chapter 2258.

§ 2252.033. Exemptions

This subchapter does not apply to:

(1) a public works contract executed before August 31, 1981;

(2) a public works contract in which the total contract price estimate at the time of execution of the contract is less than $400,000; or

(3) a public works contract made by the Texas Department of Transportation under Chapter 223, Transportation Code.

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