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Colorado caps retainage in private construction contracts: What the payment change means for you

Dec 16, 2021

Colorado has joined dozens of other states in capping the amount of money that can be withheld from contractors or subcontractors in private construction contracts until a project is successfully completed. The state law, which took effect September 7, 2021, limits retainage to 5% of the total contract value.

In recent years, it’s been customary for retainage rates to be as much as 10% of each progress payment, when a state is otherwise silent on the matter.

These FAQs can help you understand what the 5% retainage cap means for the construction business in Colorado.

Does the 5% retainage limit apply to all construction projects?

No, it applies to contracts for private commercial construction and exempts contracts for single-family homes and multi-family dwellings of no more than four units.

Does the dollar value of the contract matter?

Yes, the law applies to projects in excess of $150,000, but it also is in effect for subcontracts and supply agreements that are part of the contract regardless of their value.

What about public construction projects?

Public projects previously had legislation passed governing retainage. Colorado’s retainage on public projects is 5%.

Does the new law address the timing for payments?

No, it does not say anything about how long retained payments can be held, which is a frustration point for many in the industry.

Can additional money be withheld for other reasons like failure complete the project or part of the project in satisfactory way?

Yes. There is no cap on the level of funds that can be withheld related to specific performance issues on a project.

Does the law affect “paid when paid” or “paid if paid” provisions related to when contractors must pay subcontractors included in contracts?

No, those provisions are still permitted.

Does the law effect lien waivers?

No, subcontractors may still be required to execute lien waivers for amounts actually paid.

Contact Wipfli to learn more about legal changes affecting the construction business. Wipfli’s construction compliance team offers a host of services that ensure your payment and billing systems and general construction costs are on track.

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Author(s)

Bill Hughes, CPA
Partner
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Reed D. Sellers, CPA, CCIFP
Partner
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