Missouri Reforms Retainage Laws on Public Works Contracts

piece of pie chartFollowing the trend around the country regarding retainage practices, Missouri Governor Jay Nixon recently signed into law modifications to the Missouri Prompt Payment Act, §34.057 R.S.Mo. These revisions become effective August 28, 2014.

The revisions specifically address public works contracts and cap the amount of retainage that can be withheld at 5 percent. Public owners and their architect or engineer have been stripped of their previous statutory discretion to determine to withhold more than 5 percent “to ensure performance of the contract.” The sole instance in which public owners may withhold 10 percent is on contracts of $50,000 or less where surety bonds are not required.

The modifications extend prompt pay protections to professional engineers, architects, landscape architects and land surveyors. Like general contractors (GCs) and subs, the public owner must now pay engineers, architects and surveyors within 30 days following receipt of invoice. If payment is not made in a timely manner, interest of 1.5 percent per month accrues on the unpaid invoice.

The law requires the owner to pay out 98 percent of the retainage to the general contractor upon substantial completion. The GC must likewise pay such retainage to subs and suppliers in a timely manner after substantial completion. If the owner determines that the work is not substantially complete, the owner must give a written explanation to the GC within 14 days. The GC must give the explanation to the subcontractor responsible for the work. The law reduces the amount the owner may withhold on incomplete work from 200 percent of the value of each item remaining to 150 percent. All unpaid retainage must now be included with the final payment and paid no later than 30 days after the due date. To the extent any progress or final payment is withheld for rejected work or materials, the law requires the owner to provide a written explanation to the GC, and responsible subcontractor or supplier, effectively doing away with the practice of holding money without explanation or justification.

Missouri’s Private Construction Act, §436.300, R.S.Mo., is not affected by this revision and still allows 10 percent retainage to be withheld unless a higher amount is required “to protect the owner’s interest.” On other side of the state line, the Kansas Fairness in Public Construction and Fairness in Private Construction Acts require retainage of 5 percent, but still allow the owner to withhold up to 10 percent “if necessary to insure performance.” Stay tuned as retainage reform continues to make its way through state legislatures.

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