Tuesday, March 3, 2015

New Retainage Law Takes Effect in Massachusetts

The Commonwealth of Massachusetts has a new retainage law applicable to most private construction projects, which took effect on November 6, 2014.  The Retainage Law limits the ability of owners and contractors to negotiate retainage, punchlist, and substantial-completion provisions of certain private construction contracts.  It applies to any construction contract with an original contract price of not less than $3,000,000, and to which the Massachusetts mechanic’s lien law, M.G.L. Ch. 254, §§ 2 and 4, applies (i.e., contracts with prime contractors, all first- and second-tier subcontractors, and all first- and second-tier suppliers). Residential construction projects consisting of four or fewer units are exempt regardless of the contract value.  All construction contracts executed after the effective date are subject to the new law.
The Retainage Law limits the amount of retainage withheld from each progress payment to no more than five percent (5%) of the payment.  The law also specifically defines “substantial completion” as the stage of the project (or phase thereof, if applicable) at which work “is sufficiently complete . . . so that the project owner may occupy or utilize the work for its intended use.”  Any contract terms which conflict with this new statutory definition are void and unenforceable. 

The Retainage Law also prescribes a timeline and procedure for the release of retainage.  In general, retainage cannot be withheld for more than 90 days after substantial completion and seven additional days for each contract tier below the prime contractor.  The Retainage Law imposes a new statutory form of notice of substantial completion, which the prime contractor must submit to the owner within 14 days after achieving “substantial completion.”  The owner must accept or reject the substantial completion notice within 14 days of receipt and must send the general contractor a punchlist of deficient or incomplete items within 14 days after the owner’s acceptance. 

An owner may continue to withhold retainage, in limited amounts specified by the Retainage Law, for incomplete or incorrect work or deliverables and for certain outstanding claims.  In such event, the owner must, before the date payment is due, provide the party seeking payment with written notice describing the deficient or missing work items and deliverables, the basis of the outstanding claims, and the value attributable to each. 

The PowerPoint presentation in the link below provides more detail on the timeline and process for releasing retainage and on other aspects of the Retainage Law.  

The text of the New Retainage Law can be found here

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