2. Contracting tool used to reduce owner’s risk that
contractor will fail to perform contract obligations
Retainage = $ amount earned - $ amount paid
Historically been a flexible tool used by contracting
parties to structure in any number of ways (e.g. flat,
variable, early release, etc.)
Section 29F imposes new obligations on the project
owner/developer
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Construction Contract Retainage — The Basics
3. Codified as MGL. c. 149, section 29F; effective 11/6/14
Applies to:
• Private construction contracts of $3 million or more executed on or
after 11/6/14 (prime contracts)
• Residential projects of 1-4 units exempt regardless of cost
Key provisions:
• Cap of 5 percent retainage on each progress payment
• New timing requirements for substantial completion, punchlists, and
release of retainage
• Statutory form of “notice of substantial completion”
• Limits withholding of retainage after substantial completion
• Limits withholding of retainage from parties not involved in claims
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Summary of New Retainage Law
— Ch. 276 of the Acts of 2014
4. New Timing Requirements—Substantial Completion
Substantial Completion: Date when owner may occupy or
utilize the work for its intended purpose
14 Days after Substantial Completion: General contractor
submits Notice of Substantial Completion (new form)
14 Days after Receipt of Notice: Owner must affirmatively
accept or reject or the Notice will be deemed a “final and
binding” acceptance
• A rejection of the Notice of Subst. Completion must state
the factual and contractual basis
7 Days after Rejection of Notice: Contractor must commence
dispute resolution procedures under the contract
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5. New Timing Requirements—Punchlists
14 Days after acceptance of Notice of Substantial
Completion: Owner must provide punchlist to the contractor
7 Days after receipt of Punchlist: Contractor must provide
punchlist to all subcontractors
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6. New Timing Requirements—Release of Retainage
60 days after Substantial Completion: Contractor or
subcontractors may apply for release of retainage
30 days after receipt of Application for Retainage: Owner must
release retainage to contractor
• Contractor has additional 7 days to release retainage to subs
What amounts can Owner continue to hold?
• For incomplete, incorrect, or missing deliverables: (i) an
agreed amount or (ii) up to 2.5% of the contract value;
• 150% of the cost of incomplete or defective work; and
• Reasonable value of claims, inclusive of atty fees if
permitted by contract
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7. 7
New Timing Requirements
Contractor
submits Notice of
Subst. Completion
Owner accepts or
rejects Notice of
Subst. Completion
Owner provides
punchlist to
Contractor
Contractor
provides punchlist
to subs
Owner must
release retainage
Contractor/Subcontractors may submit
applications for release of retainage
14 Days 14 Days 7 Days
Punchlist Completion
<25 Days
60 Days 30 Days
Substantial
Completion
achieved
8. Considerations for Contracting
Retainage alternatives?
• Letters of credit/escrows
• Surety bonds and subcontract default insurance
Focus on dispute resolution methods/timing requirements
• Dispute review boards/pre-selected neutrals
Definition of substantial completion
• Intended use
New law will make competitive environment for smaller
contractors more challenging
Does the law apply if no retainage is withheld?
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9. Questions?
The Design & Construction Industry Practice at Burns & Levinson LLP focuses on
representation of public, private, and institutional owners and developers requiring the broad
range of legal services necessary to deliver successful development programs. We advise client with
respect to all aspects of project delivery including government relations, permitting, procurement
of design and construction services, project finance, labor/employment, claims mitigation and
strategy, insurance, and dispute resolution.
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Anatoly M. Darov, P.E.
Chairman, Design & Construction Practice
adarov@burnslev.com
Direct: 617.345.3820
