Retainage Changes Adopted Into Omnibus Jobs Bill

An amendment would require paying out all retainage within 60 days of substantial completion of a project, but it allows some funds to be withheld.
(Published May 13, 2019)

The jobs conference committee on May 9 adopted an amendment to the retainage provisions in HF 2208, the omnibus jobs, energy, and telecommunications finance bill.

Sen. Jason Rarick (R-Brook Park), the original bill author, presented the amendment to the conference committee, stating that he will not seek any more changes to the retainage law if the current proposal becomes law, with very limited exception.

Adopted changes

The retainage provision would require paying out all retainage within 60 days of substantial completion of a construction project, but it allows some funds to be withheld. State law currently allows the withholding of 5% retainage on construction projects.

The bill would require that at substantial completion, no retainage could be held, but the city could withhold: (1) 250% of the cost to correct or complete work known at the time of substantial completion, and (2) the greater of $500 or 1% of the value of the contract for “final paperwork.” Final paperwork is defined as documents required to fulfill contractual obligations such as tax forms, operation manuals, etc.

The adopted substantive changes include:

  • “Final paperwork” doesn’t include as-built plans. The removal of as-built plans from this definition was an acknowledgement that if the city had to recreate these plans, it would cost substantially more than 1% of any construction contract. As-built plans are provided to cities after construction projects are complete. These documents identify any deviation from initial architectural plans and reflect how the contractor actually built the project.
  • Withholding for “final paperwork” no longer capped beyond the 1%. The bill originally provided cities could only hold up to $10,000 for “final paperwork.” In a multi-million-dollar project, it would have been problematic to only be allowed to withhold $10,000 for statutorily and contractually required forms that cities currently struggle to get submitted.
  • Any reduction of retainage must be paid out to subcontractors. If a city chooses to reduce the retainage on a given construction project, the bill requires that the reduction must be passed down at the same rate throughout the construction chain to the subcontractors.
  • No need to pay what hasn’t been paid to city for state or federal aid projects. The adopted amendment provides that cities are not required to pay any portion funded by state or federal aid until these aid payments have been received.

League advocacy

The League signed onto a letter with the Minnesota Department of Administration, Minnesota Department of Transportation, and the Metropolitan Airports Commission that brought up several concerns that culminate in the struggle of complying with the retainage provisions and being responsible stewards of taxpayer money used in public construction projects.

Some specific concerns included the difficulty in estimating the value of unfinished work, and in determining which contractor is responsible for a building system that is not working. Multiple contractors could be responsible for the system not working, so it is often difficult to withhold money from the right contractor.

Public entities were also concerned with the bill’s definition of “substantial completion,” as it is inconsistent with the definition used in some current contracts. Sen. Rarick testified that if this definition caused problems in the future, he would address this concern on behalf of public entities.

Another procedural path for passage

The Senate bill, SF 947, was referred to the Senate floor. It is possible that the bill could be voted on by the full body, separate from the omnibus jobs bill.

For more background information about this bill, read a previous Cities Bulletin article.

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