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Changes to the Retainage Rates for Government (Public) Construction Projects featured image

Changes to the Retainage Rates for Government (Public) Construction Projects

On September 18, 2020, Governor Ron DeSantis signed HB 101, “An Act Relating to Public Construction,” into law. HB 101 amended both the Local Government Prompt Payment Act and the Florida Prompt Payment Act to reflect a reduction in the maximum amount, which can be held by the state and local governments as retainage on government construction projects. The changes to the law became effective on October 1, 2020.

The amended acts, the Local Government Prompt Payment Act, and the Florida Prompt Payment Acct apply only to construction projects for a local government or public entity. This includes contracts with the state and any subdivision thereof, including agencies, as well as county and municipal governments, school boards and districts, special taxing districts, and all other political subdivisions, boards, departments, and institutions relating to the government.

Previously, the maximum retainage rate for public construction projects valued over $200,000 was 10% of the total contract price until 50% of the project was completed. Following the halfway mark, the maximum retainage rate dropped to 5% for the remainder. After 50% of the project was complete, a contractor could submit a payment request to the government entity for up to half of the retained amount. Responding to a request for payment, the government would promptly pay the contractor, unless grounds for withholding the retainage existed.

Now, the maximum retainage rate on all public projects has been capped at 5% for the entire duration of the project. This means that for projects valued over $200,000, the government can no longer withhold 10% of the payment as retainage. This eliminates the requirement that contractors submit payment requests to the government following the halfway mark of their projects. Instead, the money that would otherwise be paid to contractors by the government in response to such requests, will be available to the contractor for use in the project from the very beginning.

These new retainage requirements apply to all state and local government construction projects in Florida, subject, of course, to certain exceptions. For example, the law does not apply to contracts that were entered into prior to the effective date of the changes, October 1, 2020. Furthermore, the law does not apply to construction contracts entered into by the Florida Department of Transportation.

The recent changes to the law have several important benefits for contractors working on public projects. The reduction of retainage allowed on such projects increases the capital available to contractors to complete the project from its very beginning. Additionally, it removes an element of bureaucracy in so far as removing the requirement that additional requests and paperwork be submitted to receive 5% of the contract price. This, undoubtedly, will save both time and administrative costs for contractors working on public construction projects.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.