Caps Retention With New Law
On May 2, the Maryland General Assembly passed Senate Bill 313,
which places a five-percent retention cap on construction contracts
when a performance and payment security is furnished.
The bill requires the contractor to furnish 100 percent security
to guarantee the performance of the contract and 100 percent security
to guarantee payment for labor and materials, including leased materials.
Further, the retention proceeds of any payment due from a contractor
to a subcontractor may not exceed the percentage of retention from
the owner to the contractor. This also applies to subcontractors
and other subcontractors. However, the law does not apply for any
contract less than $250,000 or any contract with the Maryland Department
of Housing and Community Development.
The practice of retention, utilized when general contractors hold
back a specified portion of a subcontractor's payment until it has
been determined that the job is complete and is acceptable, has
been a cause of concern for subcontractors who say contractors often
withhold their money for an extended period of time and can cause
cash flow problems for them.
Moreover, this new law will not prohibit withholding of any amount
due from the owner to the contractor, contractor to subcontractor,
or subcontractor to another subcontractor if the non-paying party
reasonably determines that the contractor or subcontractor's performance
under the contract provides reasonable grounds for withholding the
The new law will take effect on October 1, 2008.
HERE to read the law in its entirety.
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