Looks like the Colorado legislature is tackling retainages in commercial contracts.
Retainage is a portion of the contract price withheld from a contractor as a way to make sure that the contractor will complete the job properly. Retainage is usually set between 5% and 10%. It is common in public construction projects where state laws fix the percentage and set release conditions. In Colorado, there are no rules for private contract retainages. HB 21-1167 could change that.
HB 21-1167 Summary:
The bill prohibits a property owner from withholding from a contractor more than 5% of the price of completed work to ensure the work is satisfactorily completed. The contractor and subcontractors are also prohibited from withholding more than 5% from subcontractors and suppliers. The bill also clarifies that these prohibitions do not apply to other types of contractual conditions made before payment is due.
The contract may require lien waivers to be executed before payment is made.
The bill applies to:
- A contract that has a price of at least $150,000; and
- A subcontract or supply agreement to such a contract.
The bill does not apply to a single contract that governs:
- The building of:
- A single-family dwelling;
- A multifamily dwelling with 4 or fewer family dwelling units; or
- A contract with a public entity.
Potential Effect on Associations:
If this bill becomes a law, Associations will have more risk in large construction deals. 5% is on the lower end of the retainage range and may not be enough to cover the costs to complete the work if a contractor walks off the job or leaves a large “punch list” of items to complete. If passed, this law would require your Association to more diligently vet its contractors and take a more proactive approach to contract and vendor management.
This bill passed out of the Senate on April 30, 2021, and will be heading to the Governor’s desk shortly. Keep up to date with all community association legislative happenings on our Legislative Tracker.
If you have any questions on tackling retainages for your contracts, please contact any of our Altitude attorneys at 303-432-9999 or [email protected].
I agree that 5% is insufficient. It looks like the contractors’ lobby has done its job. Really, though, should the Legislature be meddling in private contracts? I’ve always believed that whatever the parties agree to willingly should govern.