United States: Governor Signs Bill Regulating Retainage On Private Construction Projects

Deborah Griffin is Senior Counsel and Jeff Bernarducci is a Partner in our Boston office.

The New Retainage Law Bolsters the Mass. Construction Industry, Promotes Development and Improves Contractors' Cash Flows


  • The new Massachusetts Retainage Law, which is similar to the Prompt Pay Law of 2010, will apply to any contract arising from a private construction project where the prime contract value is $3 million or more and for which a lien may be established.
  • Retainage shall be limited to 5 percent of each progress payment and new timing requirements apply to retainage release.
  • The new Retainage Law presents both opportunities and challenges for all parties in the industry. During the months before the effective date of Nov. 6, 2014, the industry will have the opportunity to digest the impact of the law; revise their standard contract forms to comply; and adopt new administrative policies, procedures and forms to be used in carrying out the requirements of the Retainage Law.

On Aug. 8, 2014, Gov. Deval L. Patrick signed into law "An Act Relative to Fair Retainage Payments in Private Construction." Massachusetts now joins numerous other jurisdictions in the regulation of retainage on private construction projects. The Retainage Law, as it is more commonly known, is codified into law at Mass. Gen. Laws Chapter 149, Section 29F. The new Retainage Law is a natural follow-on to the Prompt Pay Law of 2010, and represents the commonwealth's ongoing effort to:

  • support the construction industry's resurgence
  • promote development
  • improve the timeliness of cash flows for all contractors

History of the Massachusetts Retainage Law

The Associated Subcontractors of Massachusetts (ASM) first submitted a version of the Retainage Law in January 2011, just months after the Prompt Pay Law went into effect. Public hearings ensued in which the Associated General Contractors of Massachusetts (AGC) and various owner groups voiced concern over portions of the bill. In the spring of 2012, the Office of the Senate President urged all interested parties to work together to resolve outstanding differences.

ASM filed a modified bill in January 2013 and additional public hearings followed. The owner groups remained strongly opposed to the bill at that time. Between the summer of 2013 and late February of 2014, AGC's negotiating team achieved more modifications with ASM. By early June of 2014, AGC and ASM had reached agreement on all issues, which they submitted to legislative committees considering the bill. All parties provided final comments in an attempt to reach a fully agreed upon bill. While owner groups remained opposed to certain portions of the bill, it passed by wide margins in both houses. The governor signed the bill into law on Aug. 8, 2014.

The New Retainage Law: Key Provisions

The purpose of the new Retainage Law is similar to that of the Prompt Pay Law. Accordingly, both laws will apply in the same situation. Specifically, the new Retainage Law will apply to any contract arising from a construction project where the prime contract value is $3 million or more and for which a lien may be established under Mass. Gen. Laws Chapter 254, Sections 2 and 4.1

Cap on Retainage Withholdings

One of the most salient terms of the Retainage Law is a cap on retainage withholdings: retainage will be limited to 5 percent of each progress payment. No longer will owners or general contractors be allowed to withhold 10 percent or more to ensure performance.

Timing of Retainage Release

The new law also regulates the timing of retainage release. Timing requirements begin with thegeneral contractor's declaration of substantial completion, which itself is newly defined by the law as "sufficiently complete in accordance with the contract for construction so that the project owner may occupy or utilize the work for its intended use." The general contractor must submit a notice of substantial completion, in essentially the same form as specified in the new law, no later than 14 days from achieving the substantial completion. The project owner must then accept or reject the notice within another 14 days or else the notice is deemed accepted. The owner's rejection must be in writing and include the factual and contractual basis for the rejection. All of these new submissions and rejections must be certified in good faith by the tendering party and all rejections are subject to the dispute resolution provisions of the prime contract.2

Submission of Punch List

The owner must submit a punch list to the general contractor no later than14 days after acceptance of substantial completion. The punch list must identify both defective or incomplete work items and deliverables (project close-out documents as defined by the new law) required for final completion. In turn, the general contractor must compile a similar list for each subcontractor identifying those items on the owner's punch list applicable to the subcontractor and any other items the general contractor adds. The general contractor has an additional seven days to flow down to each subcontractor the list applicable to the subcontractor's work. As a result, each subcontractor would receive its specific list no later than 21 days from the owner's acceptance of substantial completion.3 Again, all punch lists must be certified in good faith by the tendering party.


Both the general contractor and subcontractors have the right to invoice retainage within 60 days of substantial completion. The request must include the punch list previously received and an indication that each item has been resolved (and in the case of deliverables, submitted). Retainage amounts must be paid by the owner within 30 days of the invoice. However, the owner can continue to withhold amounts, in the aggregate, for outstanding deliverables, incomplete or defective work items, and claims.4 General contractors will have an additional seven days to turn around retainage payments to a subcontractor, less the same categories of remaining offsets. This incentivizes prompt completion of final project obligations. Such offsets are only valid if the withholding party provides a written description, certified in good faith, of the outstanding issues or claims prior to the date the payment is due. Moreover, as long as the general contractor has not been declared "in default," a project owner cannot withhold retainage due to a trade contractor whose work is unrelated to the owner's claims against the general contractor.

It is important to note that conditional payment terms (i.e., "pay-if-paid" provisions) applicable to retainage are subject to the limitations of the Prompt Pay Law at Chapter 149, Section 29E, subsection (e). In addition, any contract provision requiring a party to delay commencement of an applicable dispute resolution provision more than 30 days after rejection of an application for retainage (or written notice of a dispute) is void and unenforceable.

Finally, the Retainage Law specifically states that a contract provision that "purports to waive, limit or subvert this section or redefine or expand the conditions for achievement of substantial completion for payment of retainage shall be void and unenforceable." While this provision will limit the parties' ability to draft around the express requirements of the law, there are various details affecting implementation of the law that can and should be addressed in construction contracts.

Impact on the Construction Industry in Massachusetts

The new Retainage Law presents both opportunities and challenges for all parties in the industry. Contractors of every tier can now benefit from additional – and more timely – cash flows that reduce risk and improve operations. Reduced risk for contractors theoretically means a lower construction cost for owners, particularly on lump sum projects. This promotes development and strengthens the opportunities for all players. Increased cash flow from monthly requisitions can also help avoid disputes. More cash flow could mean an easier path toward resolving disputed change orders mid-stream and/or an increased tolerance for project events that typically trigger disputes over additional time and compensation. This includes, without limitation, a subcontractor's typical obligation to resequence or amend its work plan without additional cost to the general contractor or owner. Only time will tell whether the retainage reduction, and the improved certainty provided by the timing requirements for release of retainage, will create benefits.

The law does create some additional risks. For instance, while parties in the paying position can withhold against retainage for "claims," that term is limited under the law as including only claims for breach of contract. That could expose upstream parties to paying retainage even though negligence or personal/property damage claims by third parties exist. Indemnity and other withholding rights of the upstream party could be potentially undermined. In addition, the owner community has expressed concern that lenders will continue to insist on (1) retainage higher than 5 percent; and (2) conditions precedent to the advancement of loan proceeds toward the end of the project that exceed the new statutory definition of substantial completion. Many large private projects are not financed through borrowing, but for those that are, owners and their counsel will need to be mindful of the new law when negotiating terms with lenders.

The statutory definition of the term "substantial completion" may also pose challenges. The term is defined as that point when the project is "sufficiently complete in accordance with the contract for construction so that the project owner may occupy or utilize the work for its intended use." Relative to laboratories, clean rooms, manufacturing facilities and other performance-based projects with multiple outputs, disputes could potentially arise relative to what is "sufficiently complete" to enable the owner's "intended use." The same could be said for a building that, while ready for use, is delayed in obtaining a certificate of occupancy (temporary or otherwise) for reasons beyond the parties' control. Moreover, some insurance coverages and warranties commence upon substantial completion, therefore both risk managers and counsel should closely monitor the industry's reaction to this new term.

Many of the concerns raised by the Retainage Law can undoubtedly be addressed through careful contract drafting, as long as the primary purpose of the law is not undermined or thwarted.

Time to Comply Before the Effective Date

The Retainage Law will become effective on Nov. 6, 2014, and will apply only to prime contracts entered into on or after that date, and subcontracts relating to these projects. During the months before the effective date, the industry will have the opportunity to digest the impact of the law; revise their standard contract forms to comply; and adopt new administrative policies, procedures and forms to be used in carrying out the requirements of the Retainage Law. Holland & Knight construction attorneys will be participating fully in programs designed to educate the industry about the new law.

Holland & Knight represented AGC in this matter. 


1 The Retainage Law does not apply to residential projects of one to four units.

2 The general contractor must commence dispute resolution, to the extent it exists under the prime contract, within seven days of any rejection.

3 The general contractor can expand the owner's punch list to subcontractors to the extent necessary.

4 Valuation of these remaining offsets is as follows under the new law: (1) deliverables (project close out documents) are as mutually agreed or not more than 2.5 percent of the adjusted contract price; (2) incomplete/defective work items are 150 percent of the reasonable cost to complete; and (3) claims are the reasonable value thereof and any costs, expenses and attorneys' fees incurred if permitted under the construction contract of the person seeking retainage release.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Burns & Levinson LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Burns & Levinson LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions