An Act to Clarify Rights of Retainage in Public Construction Contracts
Maine Legislature, Session 121, LD 0110
Committee: State and Local Government
Sponsors: MILLS
Amends: 5 MRSA §1746

Legislative Document 
No. 110 
H.P.119 
House of Representatives, January 21, 2003 
An Act to Clarify Rights of Retainage in Public Construction 
Contracts 
Reference to the Committee on State and Local Government suggested and ordered printed. 
Presented by Representative MILLS of Cornville. 
711~ 
'frl.11!iI£~ 
MILLICENT M. MacFARLAND 
Clerk 
Be it enacted by the People of the State of Maine as follows: 
Sec. 1. 5 MRSA §1746, as amended by PL 1989, c. 483, Pt. A, 
§19, is repealed and the following enacted in its place: 
§1146. 
Retainage in public construction contracts 
1. 
Definitions. 
As 
used 
in this 
section, 
unless 
the 
context 
otherwise 
indicates, 
the 
following 
terms 
have 
the 
following meanings. 
A. 
"Designer" means the architect or engineer designated by 
the contract documents to design the work or to provide 
contract administration for the owner. 
B. 
"Punch list" means an inventory of work that remains 
deficient 
or 
incomplete 
after 
substantial 
completion. 
"Punch list" 
includes 
reasonable 
estimates 
of 
cost 
for 
correction or completion of the work contained on the list. 
"Punch list" does not include deficiencies discovered after 
acceptance of the work. 
C. 
"Substantial completion" means the stage in the progress 
of the work when the work or designated portion of the work 
is sufficiently complete in accordance with the contract 
documents so the owner can occupy or utilize the work for 
its intended use. 
2. 
Retainage. 
In 
a 
contract 
awarded 
for 
a 
public 
improvement, the public owner may retain 5% of the money due the 
contractor 
until 
substantial 
completion 
of 
the 
work. 
At 
substantial 
completion, 
the 
owner 
and 
the 
contractor 
shall 
inspect the work and prepare a punch list. 
The owner may, after 
ins~ection of the work, withhold for defective or incom~lete work 
only those funds that are sufficient to account for 1.5 times the 
value of ~unch list work. 
As 
~unch list work is 
com~leted, the 
retainage held by the owner must be correspondingly reduced. 
Funds may not be retained in anticipation of warranty claims but 
may be retained as directed by the contractor's surety or as 
necessary to account for liquidated damages or other contract 
defaults as determined by the designer. 
3. 
Designer's role. 
Issues between the contractor and the 
owner concerning substantial or final completion or concerning 
the scope or cost of punch list work and any other questions 
necessary to determine when retained funds are due to be released 
must be promptly resolved by the designer, whose decisions are 
not binding by virtue of this section for any other purpose. 
Page l-LR0844(1) 
4. 
Contractor's remedy. 
An 
owner that retains for more 
than 30 days funds in excess of those properly calculated from 
the punch list or an owner that retains contract funds more than 
days beyond final completion is liable to the contractor for 
interest on overdue amounts at the rate of 1.5% per month and for 
reasonable attorney's fees for collection of overdue funds. 
5. 
Secured releases. 
Under a contract made for a public 
improvement, 
the contractor 
may withdraw retained 
funds 
upon 
depositing with 
the Treasurer 
of State or 
the public 
owner 
negotiable public securities or certificates of deposit greater 
in value than the amount withdrawn. 
6. 
Authority of Treasurer of State or owner. 
The Treasurer 
of State or public owner shall pay over to the contractor all net 
income 
from 
the escrowed securities as it is received. 
The 
Treasurer 
of 
State 
or 
owner 
may 
contract 
with 
a 
suitable 
financial institution for custodial care and servicing of any 
securities deposited pursuant to this section. 
7. 
Deductions. 
Any amount deducted by the public owner 
pursuant to the terms of the contract from the retained payments 
due the contractor must be deducted first from that portion of 
the retained payments for which no security has been substituted, 
then from the proceeds of any deposited security. 
In the case of 
a 
deduction 
from 
the proceeds 
of 
a 
deposited security, 
the 
contractor is entitled to receive interest, 
coupons or income 
only from those securities that remain after such amount has been 
deducted. 
8. 
Assignments. 
Any assignments of retained payments made 
by the contractor must 
be honored by 
the party holding the 
securities 
as 
part 
of 
the 
procedure 
to 
accomplish 
the 
substi tution of securities under this section, as long as the 
assignment 
is 
not 
made 
without 
prior 
notification 
to 
the 
contracting 
agency 
of 
the 
State 
and 
the 
party holding 
the 
securities. 
Such assignment may not impair the equitable rights 
of the contractor's surety in the retained payments or in the 
securities substituted for the retained payments in the event of 
the contractor's default in the performance of the contract or in 
the payment of labor and material bills or other obligations 
covered by the surety's bond. 
9. 
Environmental control costs. 
Any contract made for a 
public improvement must include the cost of environmental control 
measures required for execution of the contract; the cost of 
environmental control activity that is required by legislation or 
rules passed or adopted after the date on which bids are received 
for the project for which such contract is made or awarded must 
be paid for in an equitable manner. 
10. 
Daily financial incentive. 
The Director of the Bureau 
of General Services may approve contracts with a provision for a 
daily 
financial 
incentive 
for 
projects 
completed 
before 
the 
scheduled date 
when it can 
be 
demonstrated 
that 
the 
early 
completion will result in a 
financial 
savings to the public 
owner. 
The financial incentive may not exceed the projected 
daily rate of savings to the owner. 
Sec. 2. Application. 
This Act applies to public construction 
contracts 
in 
which 
substantial 
completion 
is 
reached 
after 
September 31, 2003. 
SUMMARY 
This bill 
amends 
the 
law 
governing public 
construction 
contracts, providing definitions of the terms "designer," "punch 
list" and "substantial completion." 
The bill also clarifies 
rights 
of 
retainage 
in 
public 
construction 
contracts; 
the 
designer's role in resolving questions pertaining to the time 
when retained funds are due; and the contractor's remedy when an 
owner retains funds for more than 30 days after final completion 
of the contract.