Maryland 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 additional amount.

The new law will take effect on October 1, 2008.

CLICK HERE to read the law in its entirety.

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