This month, Governor Jay Inslee signed into law a new statute that caps retainage on private construction projects to five percent (5%), provides a mechanism for subcontractors to get paid their retainage prior to project completion, and allows for contractors and subcontractors to post a retainage bond and get paid their retainage early. For those interested in reading the full text of this new law, the statute can be found here.
The new statute goes into effect on July 23, 2023. Under the statute, when a contractor or subcontractor considers their work under a contract subject to retainage complete, they may notify the party they contracted to perform the work for. Within 15 days of receiving the notice of completion of work, the party receiving the notice must respond with either (1) notice of acceptance of work or (2) notice of uncompleted items to the contractor or subcontractor.
If the party receiving notice does not provide notice of uncompleted items within 15 days or fails to respond to the notice of completion entirely, the unpaid retainage will begin to accrue interest at a rate of one percent (1%) per month, 30 days after the initial 15-day period. However, this interest will not accrue against a contractor who has not been paid the retainage by an upper-tier contractor or owner until payment has been received, so long as that contractor has submitted its subcontractor’s notice of completion to the upper-tier contractor or owner within 30 days of receipt.
The statute also allows for contractors to post a retainage bond to get their retainage early. Where an owner has accepted a bond in lieu of retained funds, its contractor must accept like bonds from any subcontractors, and must release funds retained from a subcontractor or supplier within 30 days of accepting the bond from the subcontractor or supplier.
These upcoming changes to the retainage framework in Washington State on private projects will reduce the financial burden retainage has on contractors across the state and—hopefully—reduce the difficulties and headaches associated with contractors and subcontractors receiving final payment for work completed.
Commentary: This statute brings private project retainage in line with public project retainage in being limited to five percent (5%) and the provisions regarding retainage bonds are also like recent legislation allowing for subcontractors to post retainage bonds. This statute is the result of extensive discussion among the industry and the bill had many iterations before the final version was passed by the Legislature.