SF 947

2nd Engrossment - 91st Legislature (2019 - 2020) Posted on 08/29/2019 09:45am

A bill for an act
relating to contracts; modifying retainage requirements for certain public contracts
and building and construction contracts; amending Minnesota Statutes 2018,
sections 15.72, subdivision 2; 337.10, subdivision 4.

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

Section 1.

Minnesota Statutes 2018, 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 The 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) For all construction contracts greater than $5,000,000, the public contracting agency
must reduce retainage to no more than 2.5 percent if the public contracting agency determines
the work is 75 percent or more complete, that work is progressing satisfactorily, and all
contract requirements are being met.

(c) The public contracting agency must release any remaining retainage no later than 60
days after substantial completion.

(d) A contractor on a public contract for a public improvement must pay out any
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 and the public agency.

(e) A contractor may not reserve as retainage from a subcontractor an amount that exceeds
the amount reserved by the public contracting agency under this subdivision. Upon written
request of a subcontractor who has not been paid for work in accordance with section
16A.1245 or 471.425, subdivision 4a, the public contracting agency shall notify the
subcontractor of a progress payment, retainage payment, or final payment made to the
contractor. A contractor must include in any contract with a subcontractor the name, address,
and telephone number of a responsible official at the public contracting agency that may
be contacted for purposes of making a request under this paragraph.

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

(1) 250 percent of the value of incomplete or defective work; 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, provided that an amount
withheld under this clause may not exceed $10,000.

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 must provide a copy
of this statement to any subcontractor that requests it. Any amounts withheld for incomplete
or defective work shall be paid within 45 days after the completion of the work. Any amounts
withheld under clause (1) must be paid within 45 days after completion of the work. Any
amounts withheld under clause (2) must be paid within 45 days after submission of all final
paperwork.

(g) 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.

(h) The maximum retainage percentage allowed for a building and construction contract
is the retainage percentage withheld by the public contracting agency from the contractor.

(i) Withholding retainage for warranties or warranty work is prohibited.

EFFECTIVE DATE.

This section applies to agreements entered into on or after August
1, 2019.

Sec. 2.

Minnesota Statutes 2018, 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. Nothing in this subdivision is intended to require that retainage be withheld
in any building or construction contract. For all construction contracts greater than
$5,000,000, the owner or the owner's agent must reduce retainage to no more than 2.5
percent if the owner or the owner's agent determines the work is 75 percent or more complete,
that work is progressing satisfactorily, and all contract requirements are being met.

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

(c) (d) Any contractor holding retainage must reduce that retainage at the same rate
reduced by the owner or the owner's agent. A contractor must pay out any remaining retainage
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. Nothing in this subdivision is intended to
require that retainage be withheld in any building or construction contract.

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

(1) 250 percent of the value of incomplete or defective work; 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, provided that an amount
withheld under this clause may not exceed $10,000.

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
for incomplete or defective work shall be paid within 45 days after the completion of the
work. Any amounts withheld under clause (1) must be paid within 45 days after completion
of the work. Any amounts withheld under clause (2) must be paid within 45 days after
submission of all final paperwork.

(f) The maximum retainage percentage allowed for a building and construction contract
is the retainage percentage withheld by the owner from the contractor.

(g) Withholding retainage for warranties or warranty work is prohibited.

(h) Retainage must not be used as collateral for the owner, owner's agent, or contractor.

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

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

EFFECTIVE DATE.

This section applies to agreements entered into on or after August
1, 2019.