Retention Protection for Contractors and Subcontractors on Private Projects
By John Welch
Starting July 23, 2023, Washington law will limit the retention that can be withheld on private construction projects, both commercial and large residential (12 or more units), to no more than 5% of the contract price and will require the party holding retention to pay interest at 1% per month on the amount withheld, commencing 30 days after completion and acceptance of the work by the project owner.
To trigger interest on retention, the party who is owed retention must provide notice to its counterparty that its contract work is complete. The party receiving the notice shall, within 15 days of receipt, either accept the work or provide notice of incomplete work. If the party receiving the notice neither accepts the work nor provides notice of incomplete work then interest at 1% per month on the retention amount is to commence 30 days after the end of the 15-day period.
A contractor may provide notice to an owner or upper-tier contractor for release of its subcontractor’s retention whose work is complete. If an owner or upper-tier contractor does not accept the subcontractor’s work or fails to notify the contractor of work yet to be performed by the subcontractor within 15 days after receipt of the notice, interest on the unpaid retention shall commence 30 days following the 15-day period.
A contractor who receives notice from its subcontractor and who submits the notice to the owner or upper-tier contractor within 30 days of receipt will have no obligation to pay interest to its subcontractor until such time that the contractor receives payment of the subcontractor’s retention.
The statute does not specify how notice is to be provided, so follow contract notice procedures.
Additionally, contractors and subcontractors on private construction projects may tender a retainage bond in lieu of retention. If the bond and bond surety meet minimal requirements specified by statute, the bond must be accepted.