HF 1234

Introduction - 94th Legislature (2025 - 2026)

Posted on 03/13/2025 06:42 p.m.

A bill for an act
relating to state government; requiring payment transparency in public contracts;
amending Minnesota Statutes 2024, sections 15.72, subdivision 2, by adding a
subdivision; 337.10, subdivision 4.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2024, section 15.72, subdivision 2, is amended to read:

Subd. 2.

Retainage.

(a) A public contracting agency may reserve as retainage from any
progress payment on a public contract for a public improvement an amount not to exceed
five percent of the payment. A public contracting agency may reduce the amount of the
retainage and may eliminate retainage on any monthly contract payment if, in the agency's
opinion, the work is progressing satisfactorily.

(b) The public contracting agency must release all retainage no later than 60 days after
substantial completion, subject to the terms of this subdivision. If the public contracting
agency reduces the amount of retainage, the contractor must reduce retainage for any
subcontractors at the same rate.

(c) A contractor on a public contract for a public improvement must pay all remaining
retainage to its subcontractors no later than ten days after receiving payment of retainage
from the public contracting agency, unless there is a dispute about the work under a
subcontract. If there is a dispute about the work under a subcontract, the contractor must
pay out retainage to any subcontractor whose work is not involved in the dispute, and must
provide a written statement detailing the amount and reason for the withholding to the
affected subcontractor.

(d) Upon written request of a subcontractor, the public contracting agency shall notify
the subcontractor of a progress payment, retainage payment, or final payment made to the
contractor.

(e) After substantial completion, a public contracting agency may withhold no more
than:

(1) 250 percent of the cost to correct or complete work known at the time of substantial
completion; and

(2) one percent of the value of the contract or $500, whichever is greater, pending
completion and submission of all final paperwork by the contractor or subcontractor. For
purposes of this subdivision, "final paperwork" means documents required to fulfill
contractual obligations, including, but not limited to, operation manuals, payroll documents
for projects subject to prevailing wage requirements, and the withholding exemption
certificate required by section 270C.66.

If the public contracting agency withholds payment under this paragraph, the public
contracting agency must promptly provide a written statement detailing the amount and
basis of withholding to the contractor. The public contracting agency and contractor must
provide a copy of this statement to any subcontractor that requests it. Any amounts withheld
under clause (1) must be paid within 60 days after completion of the work. Any amounts
withheld under clause (2) must be paid within 60 days after submission of all final paperwork.

(f) As used in this subdivision, "substantial completion" shall be determined as provided
in section 541.051, subdivision 1, paragraph (a). For construction, reconstruction, or
improvement of streets and highways, including bridges, substantial completion means the
date when construction-related traffic devices and ongoing inspections are no longer required.

(g) Withholding retainage for warranty work is prohibited. This provision does not waive
any rights for warranty claims.

(h) For a project funded with federal or state aid, the public contracting agency is not
required to pay that portion of the contract funded by federal or state aid until the federal
or state aid payments have been received.

(i) Nothing in this section requires payment for a portion of a contract that is not complete
or for which an invoice has not been submitted. new text begin A contract, management system, or procedure
that restricts, delays, or prohibits a party from submitting an invoice is contrary to public
policy and is void and unenforceable.
new text end

Sec. 2.

Minnesota Statutes 2024, section 15.72, is amended by adding a subdivision to
read:

new text begin Subd. 4. new text end

new text begin Notification to contractors and subcontractors of payment. new text end

new text begin (a) A public
contracting agency must notify contractors and subcontractors on a public improvement
project of every tier of any progress payment, retainage payment, final payment, or any
other payment made by the public contracting agency.
new text end

new text begin (b) The notification must include:
new text end

new text begin (1) the amount of the payment;
new text end

new text begin (2) the date the payment was made;
new text end

new text begin (3) the name and address of the party receiving the payment;
new text end

new text begin (4) at least one of the following items:
new text end

new text begin (i) an identification of the scope of work the payment relates to;
new text end

new text begin (ii) the percentage of overall project completion, the percentage of completion for scope
of work the payment relates to, and a general description of what work the amount paid
relates to; or
new text end

new text begin (iii) a copy of a payment application submitted by a contractor or subcontractor that the
payment issued relates to; and
new text end

new text begin (5) the reasons for withholding of payment and any retainage terms applied to the
payment.
new text end

new text begin (c) The public contracting agency must provide the notification in this subdivision to
contractors and subcontractors of every tier within three business days of making the
payment.
new text end

new text begin (d) No cost or fees shall be charged to the contractor or subcontractor for the notice
provided to them.
new text end

Sec. 3.

Minnesota Statutes 2024, section 337.10, subdivision 4, is amended to read:

Subd. 4.

Progress payments and retainages.

(a) Unless the building and construction
contract provides otherwise, the owner or other persons making payments under the contract
must make progress payments monthly as the work progresses. Payments shall be based
upon estimates of work completed as approved by the owner or the owner's agent. A progress
payment shall not be considered acceptance or approval of any work or waiver of any defects
therein.

(b) Retainage on a building and construction contract may not exceed five percent. An
owner or owner's agent may reduce the amount of retainage and may eliminate retainage
on any monthly contract payment if, in the owner's opinion, the work is progressing
satisfactorily. If the owner reduces the amount of retainage, the contractor must reduce
retainage for any subcontractors at the same rate. Nothing in this subdivision is intended to
require that retainage be withheld in any building or construction contract.

(c) The owner or the owner's agent must release all retainage no later than 60 days after
substantial completion subject to the terms of this subdivision. For purposes of this
subdivision, "substantial completion" shall be determined as provided in section 541.051,
subdivision 1, paragraph (a).

(d) A contractor must pay all remaining retainage to its subcontractors no later than ten
days after receiving payment of retainage, unless there is a dispute about the work under a
subcontract, in which case the contractor must pay out retainage to any party whose work
is not involved in the dispute. If there is a dispute about the work under a subcontract, the
contractor must pay out retainage to any subcontractor whose work is not involved in the
dispute, and must provide a written statement detailing the amount and reason for the
withholding to the affected subcontractor.

(e) After substantial completion, an owner or owner's agent may withhold no more than:

(1) 250 percent of the cost to correct or complete work known at the time of substantial
completion; and

(2) one percent of the value of the contract or $500, whichever is greater, pending
completion and submission of all final paperwork by the contractor or subcontractor. For
purposes of this subdivision, "final paperwork" means documents required to fulfill
contractual obligations, including, but not limited to, operation manuals, payroll documents
for projects subject to prevailing wage requirements, and the withholding exemption
certificate required by section 270C.66.

If the owner or the owner's agent withholds payment under this paragraph, the owner or the
owner's agent must promptly provide a written statement detailing the amount and basis of
withholding to the contractor. The owner or the owner's agent and the contractor must
provide a copy of this statement to any subcontractor that requests it. Any amounts withheld
under clause (1) must be paid within 60 days after completion of the work. Any amounts
withheld under clause (2) must be paid within 60 days after submission of all final paperwork.

(f) Withholding retainage for warranty work is prohibited. This provision does not waive
any rights for warranty claims.

(g) This subdivision does not apply to a public agency as defined in section 15.71,
subdivision 3.

(h) This subdivision does not apply to contracts for professional services as defined in
sections 326.02 to 326.15.

(i) Nothing in this section requires payment for a portion of a contract that is not complete
or for which an invoice has not been submitted. new text begin A contract, management system, or procedure
that restricts, delays, or prohibits a party from submitting an invoice is contrary to public
policy and is void and unenforceable.
new text end