In what is being hailed as a victory for contractors, a recently enacted New Mexico Retainage Act limits retainage to 5% of the contract value. Also, if retainage is required, the owner must put the funds into an interest-bearing escrow account. Interest accrues on a pro rate basis for the party to which it is owed.

Other language in the new law sets limits on how long the owner can go before paying the contractors and subcontractors.

Retainage, according to SMACNA, "forces contractors to increase bid prices to absorb the loss of capital and to pay for the interest on the money they have to borrow. Therefore, many quality firms are deterred from bidding certain projects¿ The reality is that contractors typically wait months, and sometimes even years, for payment in full for their work. This is especially true for early-finishing trade contractors, who finish their work near the beginning of a project's life-span, but very often wait to be paid in full until all trades are finished."

It is felt that many owners now will choose to pay the general contractors and subcontractors rather than go to the trouble of setting up an escrow account and paying interest on the money set aside.

According to SMACNA, "Other chapters may want to use the New Mexico piece of legislation as a guide in drafting their own retainage legislation."

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