Florida Lawmakers Reduce Retainage for State and Publicly Funded Projects

There’s good news for contractors working on state and public projects. Florida lawmakers recently passed a law limiting the amount of retainage that can be withheld on most construction projects.

CS/HB 101 will cap most retainage at 5% for the duration of the entire project and is expected to be signed into law on Oct. 1, 2020. Read on to find out more about this new legislation.

The Financial Concerns of Retainage

Retainage can put a financial strain on construction firms, particularly due to the way that the previous law regulated withholding payments. Currently, the state can retain up to 10% of a state or local construction contract during its various stages. (The actual percentage depends on the total value of the contract or the county and municipality’s population.) This retainage can be held until 50% of the project is complete.

The goal of retainage is to ensure that contractors will complete the work on time. In reality, however, it can stress already tight budgets. As we’re all aware, construction frequently involves delays (often before half the project is completed). Under the existing law, contractor payments could be unreasonably held up through no fault of the general contractor—forcing them to wait longer to claim their retainage.

CS/HB 101 is a breath of fresh air for many contractors. Under the new law, contractors will no longer have to wait until half the project is completed before they can recoup some of the retainage. Instead, the rate is set to 5% across the board.

Specifics: How the Old and New Laws Compare

Under the old law, the retainage rates and terms were tiered:

• For state and local contracts for $200,000 or less, the state could retain up to 10% of the contractor’s payment.
• For those over $200,000, the state could retain up to 10% before half of the project is complete and 5% thereafter.
• For projects in a municipality with a population under 25,000 (or a county with a population under 100,000), the government could withhold up to 10% of the entire payment.

Under the new law, all retainage for state and local projects (regardless of stage of completion, population or contract value) is capped at 5%. However, contractors can no longer request the government release part of the retainage after half the project is completed. They also can’t withhold more than 5% of each payment to subcontractors after half the project is finished (as was previously accepted).

There are two exceptions. First, the new law does not apply to “FDOT construction projects authorized by ch. 337, F.S., or any contract for construction services entered into, pending approval, or advertised by a government entity, on or before October 1, 2020.”

The state is also not obligated “to pay or release any amounts that are the subject of a good faith dispute, the subject of a claim brought pursuant to s. 255.05, or otherwise the subject of a claim or demand by the public entity or contractor.”

Financial Impact

The cap on retainage will ensure contractors receive more money in their progress payments. This in turn could result in more competitive bids for public works projects. There is no projected fiscal impact on the state. Retainage is still in place, and any project over $200,000 requires a performance bond. This protects against unreasonable delays and defaults. In short… everybody wins.

With these changes, contractors and subcontractors may find themselves more willing—and financially able—to bid on public works projects. It also helps to work with a construction CPA firm to better understand the new retainage rates and what they mean for your company.

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