An Act To Clarify Rights of Retainage in Public Improvement Construction Contracts
Maine Legislature, Session 122, LD 1478
Committee: State and Local Government
Sponsors: MILLS
Amends: 5 MRSA §1746-A

Legislative Document 
No. 1478 
S.P.503 
In Senate, March 24, 2005 
An Act To Clarify Rights of Retainage in Public Improvement 
Construction Contracts 
Reference to the Committee on State and Local Government suggested and ordered printed. 
Presented by Senator MILLS of Somerset. 
Printed on recycled paper 
JOY J. O'BRIEN 
Secretary of the Senate 
Be it enacted by the People of the State of Maine as follows: 
Sec. 1. 5MRSA§1746. as amended by PL 1989, c. 483, Pt. A, 
§19, is further amended by inserting at the end a new paragraph 
to read: 
This section is repealed January 1, 2008. 
Sec. 2. 5 MRSA §1746-A is enacted to read: 
§1746-A. 
Retainage in public improvement construction contracts 
1. 
Definitions. 
A~s __ ~u~s~e~d~~i~n~~t~h~i~s~~s~e~c~t~~~'o~~n~, __ ~u~n~l~e~s~s~_t~h~e 
context 
otherwise 
indicates, 
the 
following 
terms 
have 
the 
following meanings. 
A. 
"Designer" 
m~j;Hl~he_architeJ~ . .t..-
engineer or interior 
design 
professional 
designated 
by 
contract 
documents 
to 
de sign 
a 
pub li c 
i mE r,-,o",-v-,-",e-,-,m,-,e,--,n~t",--__ o",--"-r __ 
--",t,-"o'------.tp<-,r,--,o"-v-,--",i-",d,-"e~----,c"-,o,,,-,n=-,,,t--,,-r-,,,a..."c"--,,,t 
administration for the owner. 
B. 
"Punch list" means an inventory of work that remains 
de f i c i en tor i nC_Q.!J1p 1 e t~~Lt.e r __ ~ ub sJ;.an t i al 
comp 1 e ti on .~_~A 
punch 
list 
includes 
reasonable 
estimates 
of 
cost 
for 
correction or completion of the work contained on the list. 
Deficiencies discovered after acceptance of the work are not 
~nch list items but may be covered by warranty or contrpct 
obligations. 
C. 
"Substantial completion" means the staw in the progress 
of 
a 
public 
improvement 
when 
the 
work 
or 
a 
designated 
portion thereof is sufficiently complete in accordance with 
the contract documents that the owner can occupy or use the 
public improvement for its intended use. 
2. 
Ret9;i._n_~ge_. ___ ~11Y 
__ contract 
awarded 
for 
a 
public 
improvement, the owner of.........£.....ublic improvement may retain 5
0b 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 
thereafter withhold for defective or incomplete work only those 
funds that are sufficient to account for 1.5 times the value of 
punch list work. 
As punch list work is completed, 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. 
Page l-LR1155(l) 
3. 
Designer's role. 
Issues between the contractor and the 
owner of a public improvement concerning substantial or final 
completion or concerning the scop~ or cost of punch list work and 
any other guestions 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. 
~Cont.J:.a~!:J),I"~;LJe.me.d"y'~n owner of a public improvement 
that retains for more than 30 days any funds in excess of those 
properly calculated from 
the punch list or that retains 
any 
contract funds 
more 
than 
days 
beyond final 
completion is 
liable to the contractor for interest on overdue amounts at the 
rate of 1.5°"0 per month and for reasonable attorney's fees for 
collection of overdue funds. 
5. 
Secured releases. 
Under any 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 the owner of a public improvement shall pay over to 
the contractor all net income from the escrowed securities as it 
is received. 
The Treasurer of State or the owner may contract 
with 
a 
suitable financial institution for custodial care and 
servicing of any securities deposite~ursuant to this section. 
7. 
Deductio1!S.. 
Any 
amount deducted by the 
owner of 
a 
public improvement, pursuant to the terms of the contract, from 
the retained payments due the contractor must be deducted, first 
from that portion of the retai~ayments for which no security 
has been substituted, then from the proceeds of any deposited 
security. 
In the latter case, 
the contractor is entitled to 
receive interest, coupons or income only from those securities 
that remain after the deduction has been made. 
8. 
As~ents. Any assignment of retained payments made 
by the contractor of a public improvement must be honored by the 
party 
holding 
the 
securities 
as 
part 
of 
the 
procedure 
to 
accomplish the substitution of securities under this section, 
provided that such an assignment may not be made without prior 
notification to the contracting agency of the State and the party 
holding the securities. 
Such an assignment does not impair the 
eguitable 
rights of 
the 
contractor's surety in the 
retained 
payments or in the securities substituted therefor in the event 
of the contractor's default in the performance of the contract o~ 
in the payment of labor and material bills or other obligations 
covered by the surety's bond. 
9. 
Enviro.gm~p.tal control costs. 
Any contract made for a 
public improvement must include the cost of environmental control 
measures reguired for execution of the contract, provided that 
the cost of environmental control activity that is reguired by 
le...gislation, 
rule or regulation passed, adopted or promulgated 
after the date on which bids are received for the project for 
which that contract is made or awarded must be paid for in an 
eguitable manner. 
10. 
Daily financial 
i~centive. 
The Director of the Bureau 
of General Services may approve contracts with a provision for a 
Qaily 
financial 
incentive 
for 
public 
improvements 
completed 
before the scheduled date when it can be demonstrated that the 
early completion will result in financial savings to the owner of 
a public improvement. 
The financial incentive may not exceed the 
projected daily rate of savings to the owner. 
Sec. 3. Application. 
The 
Maine 
Revised Statutes, Title 
5, 
section 1746 applies to public improvement construction contracts 
in which substantial completion, as defined in Title 5, section 
1746-A, subsection 1, paragraph C, is reached before January 1, 
2006. 
Title 5, 
section 1746-A applies 
to public 
improvement 
construction 
contracts 
in 
which 
substantial 
completion, 
as 
defined in section 1746-A, subsection 1, paragraph C, is reached 
after December 31, 2005. 
SUMMARY 
This bill provides that in any contract awarded for a public 
improvement the owner of the public improvement 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 
thereafter withhold for defective or incomplete work only those 
funds that are sufficient to account for 1. 5 times the value of 
punch list work. 
As punch list work is completed, the retainage 
held by the owner must be correspondingly reduced. 
Current law 
provides that the State shall withhold 5°"0 of the money due the 
contractor until the project under the contract has been accepted 
by or for the State, except that when the contract has been 
substantia~ly completed 
the State may, 
upon 
request, 
further 
reduce the amounts withheld if it deems it desirable and prudent.