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“New Retainage Law”

Massachusetts has enacted a law designed to address retainage abuses. This short article highlights some of the most salient points.

October 2014

Drew W. Colby

Massachusetts has enacted a law designed to address retainage abuses.  This short article highlights some of the most salient points.  It is not intended as an exhaustive description of all the rights and obligations created by the law.

When does the law take effect?

November 6, 2014. 

On which projects is the retainage law applicable?

All private projects where the base contract value at the Owner to General Contractor level is not less than $3,000,000 excepting only residential projects (regardless of contract value) of four or fewer units.  For example, it does not apply to a $12,000,000 four-unit residential project nor does it apply to public projects.

What is the limit on retainage withholdings from requisitions?

The law limits retainage withholdings on periodic payments to 5%.

What are some key processes and deadlines imposed by the new law?

The General Contractor must submit a notice of substantial completion within 14 days of achieving the same.  Substantial completion is defined as the date the work is sufficiently complete so the Owner may occupy or utilize the project for its intended use. 

The Owner then has 14 days to accept or reject the notice.  An Owner’s failure to reject will be deemed to be an acceptance of the notice. If the Owner rejects the notice, the Owner must provide a factual and contractual basis for such rejection.

If the General Contractor disputes the rejection, the General Contractor must commence the dispute resolution provisions of the contract within seven (7) days of the receipt of the Owner’s rejection.

The Owner must provide a punchlist within 14 days of substantial completion.

The General Contractor must provide a punchlist to all Subcontractors and Suppliers from which it is withholding retainage within 21 days of substantial completion.

The General Contractor, Subcontractors, and Suppliers may submit a written application for payment of retainage that must include an update concerning punchlist items.  This application may be submitted once 60 days passes from substantial completion or earlier if the parties so agree.

The Owner must pay retainage no later than 30 days following submission of the application (unless withholdings are allowed by statute) and the time period for payment is extended by seven (7) days for each tier below the General Contractor.

What are the limitations on amounts withheld from retainage payments?

The amounts withheld from retainage payments cannot exceed the following:

  • For incomplete, incorrect or missing deliverables then either:
    • mutually agreed amount; or
    • if no agreement on amount, then the reasonable value which shall not exceed 2.5% of the total adjusted contract price of the party seeking payment of the retainage.
  • 150% of the reasonable cost to complete or correct.
  • The reasonable value of claims and any costs if such withholding is allowed in the contract.

The statute prohibits withholding any amount unless the applicant has received, before payment is due, a detailed written list of outstanding items, along with the value of each item, all certified as made in good faith.

The statute also allows additional invoicing for retainage as items are completed, corrected or delivered.

What impact does an Owner/General Contractor dispute have on Subcontractors’ retainage?

The statute requires the Owner to release the retainage of all Subcontractors whose work or performance did not give rise to the claim provided the General Contractor has not been declared in default.

Summary

This law creates new rights and obligations.  We strongly recommend consulting with a construction attorney to ensure your contract complies with these mandatory provisions.


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