New Florida Law Substantially Reduces Retainage Rate on Government Construction Projects

On September 18, 2020, Florida Governor Ron DeSantis signed House Bill 101, an act relating to public construction, into law. This new law amends Section 218.735, Florida Statutes (the “Local Government Prompt Payment Act”) and Section 255.078, Florida Statutes (the “Florida Prompt Payment Act”), by reducing the maximum retainage rate on a government construction projects in Florida from 10% for the first half of a project, and 5% for the remainder, to a flat 5% throughout the life of the project. This new law and the changes to the Local Government Prompt Payment Act and the Florida Prompt Payment Act will become effective on October 1, 2020, and apply to construction services contracts advertised for bid or entered into by state or local government entities in Florida after October 1, 2020.

Local Government Prompt Payment Act Florida Prompt Payment Act retainage rate government construction project

What is Retainage?

In most construction contracts, payments are made to contractors in installments as the project work progresses, usually on a monthly basis, with the payments generally referred to as progress payments. Retainage, also referred to as retention, is a common construction practice whereby the owner withholds a portion of each progress payment from the contractor until the project is substantially complete. The contractor will then withhold a similar amount of retainage from progress payments to its subcontractors.  The primary purpose of payment retainage is to protect the owner to the extent of problems during the project and create a financial incentive to the contractor to successfully complete the job in a timely fashion. However, it can also cause cash-flow issues for contractors and subcontractors, particularly on lengthy projects.

What is the Current Florida Law on Retainage on Public Projects?

The current law regarding retainage on state and local government construction projects provides  that for construction contracts valued at more than $200,000, a state or local government entity may withhold up to 10% of a progress payment until 50% of the project is completed. When 50% of the project is completed, a state or local government entity may withhold only 5% of a progress payment thereafter. §§ 218.735(8)(a)-(b), 255.078(1)-(2) Fla. Stat. However, municipalities with a population of 25,000 or less and counties with a population of 100,000 or less, may withhold up to 10% of each progress payment until final completion and acceptance of the project. § 218.735(8)(b), Fla. Stat.

After 50% of the project is completed, a contractor may submit a payment request to the state or local government entity for up to half of the retained amount. The state or local government entity must promptly make payment to the contractor, unless there are grounds for withholding the payment of retainage. §§ 218.735(8)(d), 255.078(4), Fla. Stat.

A contractor may also withhold more than 5% of each progress payment from a subcontractor after 50% the project is completed, based on the contractor’s assessment of a subcontractor’s past performance, the likelihood that such performance will continue, and the contractor’s ability to rely on other safeguards. If a contractor withholds more than 5%, the contractor must notify the subcontractor, in writing, of its determination and the reasons for making that determination, and the contractor may not request the release of the retained funds from the local government entity or public entity. §§ 218.735(8)(c), 255.078(3), Fla. Stat.

What is the New Florida Law on Retainage on Public Projects?

The new law reduces the maximum retainage rate on public construction projects to a flat 5%. More specifically, for construction contracts valued at more than $200,000, the new law reduces the maximum amount a state or local government entity may withhold from a progress payment, from 10% to 5%, regardless of the stage of completion of the project. In addition, the new law reduces the amount that municipalities with a population of 25,000 or less, and counties with a population of 100,000 or less, can withhold from a progress payment, from 10% to 5%.

Thus, instead of state and local governments withholding 10% retainage for the first 50% of a project, and 5% thereafter until completion, only 5% retainage may be withheld from progress payments during the entire project.  This change will be beneficial to contractors and subcontractors working on public projects in Florida as it will result in significant additional cash flow to them much earlier during the course of the project.  For this reason, this new law was one of the top legislative priorities of industry trade groups like the Associated Builders and Contractors of Florida in the 2020 legislative session.

The bill also repeals the ability of a contractor, after 50% of the project is completed, to submit payment requests to the local government entity or public entity for up to half of the retained amount. In addition, the bill repeals the ability of a contractor, after 50% of the project is completed, to withhold more then 5% of each progress payment to subcontractors.

What Public Construction Projects are Affected?

The Local Government Prompt Payment Act and Florida Prompt Payment Act apply only to construction projects with a local government entity or public entity. A “public entity” is defined in the Florida Prompt Payment Act as “the state, or any office, board, bureau, commission, department, branch, division, or institution thereof, but does not include a local government entity as defined in s. 218.72.” § 255.072(5), Fla. Stat.  A “local government entity” is defined in the Local Government Prompt Payment Act as a “county or municipal government, school board, school district, authority, special taxing district, other political subdivision, or any office, board, bureau, commission, department, branch, division, or institution thereof.” § 218.72(5), Fla. Stat.

Thus, the new retainage requirements apply to all state and local government construction projects in Florida, subject to certain exceptions.  First, the new law specifically states that it does not apply to contracts for construction services which are entered into or are pending approval by a local government entity or public entity, or to any construction services project advertised for bid by the local government entity or public entity, on or before October 1, 2020.  Second, the new law does not apply to contracts executed by the Florida Department of Transportation under Chapter 337, Florida Statutes.


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