Several changes to Minnesota retainage laws were introduced during this past legislative session and have now been signed into law by Governor Walz. This email contains some highlights of the new retainage law as it will apply to all Minnesota contracts signed on or after August 1, 2019.
- The 2019 retainage changes will apply to all construction projects utilizing retainage in Minnesota – public and private.
- General contractors must reduce retainage at the same rate that owners reduce retainage.
- General contractors must pay retainage to their subcontractors according to the Prompt Payment Act (within 10 days of receiving a payment from the owner). If retainage is not paid according to the Prompt Payment Act, a subcontractor that prevails in a lawsuit can recover interest of 18% annually and reasonable attorney’s fees.
- Owners and general contractors must release retainage to subcontractors no later than 60 days after “substantial completion.” Substantial completion is defined as the date the project can be occupied or used.
- An owner or contractor can withhold retainage only if they provide a “written statement” documenting a dispute that justifies the withholding of retainage.
- Upon a subcontractor’s written request, the owner must tell the subcontractor if a progress payment or retainage payment has been made to the general contractor.
- After substantial completion, an owner can withhold 250% of the costs to correct or complete punch list work if the owner provides a written statement documenting the need for the punch list work. The owner must pay such withholding no later than 60 days after the completion of the punch list work.
- Even after substantial completion, the owner may withhold 1% of the value of the contract or $500 (whichever is greater) until the general contractor and/or subcontractors submit “final paperwork,” which is defined as all documents required to fulfill the contractual obligations such as O&M manual, payroll documents for prevailing wage reporting and withholding exemption certificates. Once such paperwork is provided, the owner must pay without 60 days.
- Withholding of “warranty work” is prohibited. Warranty work is contractually obligated corrective work that is necessary to address defects that arise after substantial completion.
The information contained in this blog post is for educational purposes only as well as to give you general information and a general understanding of the topic, not to provide specific legal advice.