Construction contracts often hold back some contractor pay until the job’s end. Massachusetts lawmakers enacted a law in August 2014 to make those holdback payments flow – and to impose a record keeping burden on those who would rather not release retainage.

The enactment, Chapter 149 Section 29 F sheparded through by the Associated Subcontractors of Massachusetts, addresses the perceived injustice of owners and prime contractors bargaining over holdback money (and subcontractors’ profit) at the end of a job, when the bargaining leverage is imbalanced.

Retention Capped at 5%

The law applies only to projects where the owner contract exceeds $3,000,000 and to contracts signed after August 2014. On those projects, no one can hold back more than 5% of any progress payments.

Substantial Completion Starts the Clock for Release of Retention

The law features time triggers starting with the Certificate of Substantial Completion – the prime contractor must give a set notice to the owner who has only 14 days to catalogue, in writing, the factual and contractual basis for refusing to release retainage. If no one makes a list of problems there are deemed to be none. After that, contractors of all tiers can submit applications for payment of the retainage being held on their contracts. The onus of timely explanatory paperwork falls on those who refuse to release retainage.

Limit to List – What Can Be Held Back

If work needs to be fixed, and it has been described in writing, the holdback can only be 150% of the value of the fix. The law bans holding more than 2.5% of the contract value in most cases. Prime contractors can only retain moneys of a lower tier subcontractor if the holdback is based on that subcontractor’s performance or default.

Lawmakers Rules Reach into Construction Contracts

Like the Prompt Pay Law enacted in 2010, lawmakers were prompted to impose rules onto construction contracts to ensure that payments flow and to put some burden on those who would stop payments to explain themselves.