California Law Affecting Retainage Requires More Detail, Explanation

October 24, 2014

California Gov. Jerry Brown has approved state legislation focused on retainage that could have an adverse effect on contractors and subcontractors. By signing AB 1705 into law, California now requires that bid documents include details explaining the basis for finding a project to be "substantially complex," which allows a public agency to retain more than 5%, as well as the actual retention amount. The mandate also requires that any finding that a project is substantially complex must be backed up with a description of the specific project and why it is a unique project that is not "regularly, customarily or routinely performed by the agency or licensed contractors," according to state documents.

"Retainage can be problematic for subcontractors and material suppliers because they are often forced to wait until project completion to receive the final payments for their labor or materials," said Chris Ring, of NACM Secured Transaction Services. "A higher retainage amount means a larger receivable balance carried on the books until project completion." He described the law as government agencies "taking advantage" of contractors.

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