Massachusetts has just passed a new law that governs the retainage process on private construction contracts that owners, lenders, contractors and sub-contractors in Massachusetts should be familiar with. This new law alters and accelerates the payment process on Massachusetts commercial construction projects.
The new Massachusetts Retainage Law, applies to any private construction contract:
- For construction projects of $3 million or more, entered into after November 8, 2014;
- Between an owner and prime contractor or contractor and a subcontractor under a prime contract
- for projects that are not residential projects of four or fewer units.
The Retainage Law limits the amount of any retainage to five percent (5%) of any progress payment, and as such, no longer will owners or general contractors be permitted to withhold ten percent (10%) or more to ensure performance. The Retainage Law also imposes timing requirements on both the owner and contractors regarding the release of retainage.
Specifically, the essential procedures and timelines are that:
- The general contractor must submit a notice of substantial completion within 14 days of the date substantial completion has been achieved.
- The owner has 14 days to respond to the notice, and unless he owner objects the project in writing it will be deemed to be substantially complete.
- The owner is further required to submit a punchlist within 14 days after accepting – whether expressly or by implication – the substantial completion date.
- The contractor is to pass the punchlist along to the pertinent subcontractors within 7 additional days.
The general contractor or subcontractor may submit a written application for payment, which includes update on the status of punchlist items, once 60 days have passed from substantial completion. The owner must pay the retainage within 30 days of the application, provide that retainage can be withheld for outstanding deliverables, incomplete items or defective work items, subject to the limitation that the punchlist amount may not be greater than 150% of the value of incomplete or defective work, and for deliverables the punchlist is capped at 2.5% of contract value.
The terms of the new law provide that its provisions may not be modified by contract, and any such agreed modifications “shall be void and unenforceable.” The new law will become effective on November 8, 2014.