SUBCONTRACTORS ON WASHINGTON PUBLIC PROJECTS CAN NOW GET THEIR RETAINAGE MONEY SOONER

Subcontractors on public projects in Washington State will no longer be required to wait until final acceptance of the project to get their retainage money. A new statute, which goes into effect on July 23, 2017 and applies only to Washington public projects, will allow subcontractors to get their retainage sooner.

Under prior law, a subcontractor could only get its retainage prior to final acceptance if the general contractor provided a retainage bond to the public owner to secure a release of the general contractor’s retainage and the subcontractor then provided a similar retainage bond to the general contractor in the amount of its own retainage. If the general contractor decided to not provide a retainage bond to the owner, the subcontractor would be forced to wait until final acceptance of the project before it could get paid its retainage.

This meant that some subcontractors had to wait for years after their work was completed before the project was accepted and they received their retainage money. Retainage represents 5% of the subcontractor’s total billings on a public project in Washington – and this is typically a large portion of the subcontractor’s total profit on the job. This extended delay can be very frustrating for subcontractors and, thus, this legislation was supported by many subcontractor trade organizations in Olympia.

The new statute will allow a subcontractor to request that the general contractor submit a bond to the owner for that portion of the general contractor’s retainage pertaining to the subcontractor. The general contractor may withhold the subcontractor’s portion of the bond premium from the amounts that would then be paid to the subcontractor for their retainage. Once the bond is accepted by the owner and the funds are released to the general contractor, the subcontractor can obtain its retainage funds from the general contractor if it then provides the general contractor with a retainage bond.

The result of all this is that the subcontractor can get its retainage sooner under the new statute, but it must pay for the bond premium on the bond that the general contractor provides to the owner and the bond premium required for the retainage bond that it provides to the general contractor. Although the bond premium costs will be deducted from the subcontractor’s retainage, this statute has been viewed as a “win” for subcontractors, and especially those who have had to wait for extended periods of time to get their retainage money.

The general contractor is required to provide the retainage bond to the owner for the subcontractor’s retainage unless (1) the subcontractor refuses to pay the subcontractor’s portion of the bond premium; (2) the subcontractor refuses to provide the general contractor with a retainage bond; or (3) the bond is not “commercially available”.

Comment: It remains to be seen just how this statute will play out between general contractors and subcontractors on public projects. The amount of the bond premium that a general contractor must pay to bond the subcontractor’s portion of the retainage will vary, depending on the general contractor’s experience with its bonding company and financial capabilities. The general contractor’s ability to obtain a bond for the subcontractor’s retainage also might be affected by the general contractor’s bonding capacity – and, thus, it may not be “commercially available” to the general contractor.

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