A new law was enacted by the Massachusetts legislature which limits the retainage amount on certain commercial construction projects. It defines the “substantial completion” date, and provides the timing for payment of retainage. The law applies to contracts entered into after November 6, 2014.
The “Act Relative to Fair Retainage Payments in Private Construction” applies to private projects where the original contract amount exceeds $3,000,000. However, the Act does not apply to residential projects of 1 to 4 units.
Below are a few highlights of the new law:
• Limits retainage to 5% of any progress payment;
•“Substantial completion” has a specific definition in the new legislation. Generally speaking, “substantial completion” is considered to be the point in the project when work is sufficiently complete so as to permit the owner to occupy the property for its intended use;
•The general contractor must submit a Notice of Substantial Completion to the owner within 14 days after the date the general contractor thinks that “substantial completion” has been attained; the owner then has 14 days to accept or reject the Notice;
•General contractors and subcontractors may submit written applications for payment of retainage within 60 days after substantial completion; and
•The owner has 30 days after receipt of the retainage application to pay the retainage to the general contractor, and the general contractor has an additional 7 days (after receipt of payment) to pay the retainage to its subcontractors.
There are also additional provisions for the owner’s submission of a written punchlist for incomplete work or undelivered materials, as well as the amount of retainage that can be withheld for incomplete or defective work. Overall, the new laws represent positive legislation for subcontractors and material suppliers who are subject to unreasonably long retainage terms and prolonged delays for payment of retainage.