Pennsylvania Retainage Guide and FAQs

(a) Time for payment.–If payments under a construction contract are subject to retainage, any amounts which have been retained during the performance of the contract and which are due to be released to the contractor upon final completion shall be paid within 30 days after final acceptance of the work.

(a.1) Posting of security in lieu of retainage.–Upon reaching substantial completion of its own scope of work, a contractor or subcontractor may facilitate the release of retainage on its contract before final completion of the project by posting a maintenance bond with approved surety for 120% of the amount of retainage being held.

(b) Agreement between contractor and subcontractor.–If an owner is not withholding retainage, a contractor may withhold retainage from a subcontractor in accordance with their agreement. The retainage shall be paid within 30 days after final acceptance of the work.

(c) Payment of retainage to subcontractors.–A contractor shall pay to the contractor’s subcontractors, and each subcontractor shall in turn pay to the subcontractor’s subcontractors, within 14 days after receipt of the retainage, the full amount due each subcontractor.

(d) Withholding acceptance or failure to pay retainage.– Withholding of retainage for longer than 30 days after final acceptance of the work shall be subject to the obligations imposed upon the owner, contractor or subcontractor in section 6(b) or 11(b). If an owner, contractor or subcontractor unreasonably withholds acceptance of work or fails to pay retainage as required by this section, the owner, contractor or subcontractor shall be subject to the payment of interest at the rate established in section 5(d) on the balance due and owing on the date acceptance was unreasonably withheld or the date the retainage was due and owing, whichever is applicable. The owner, contractor or subcontractor shall also be subject to the provisions of section 12.

(a) Contract provision.–A contract may include a provision for the retainage of a portion of the amount due the contractor to insure the proper performance of the contract except that the sum withheld by the government agency from the contractor shall not exceed 10% of the amount due the contractor until 50% of the contract is completed. When the contract is 50% completed, one-half of the amount retained by the government agency shall be returned to the contractor. However, the architect or engineer must approve the application for payment. The contractor must be making satisfactory progress, and there must be no specific cause for greater withholding. The sum withheld by the government agency from the contractor after the contract is 50% completed shall not exceed 5% of the value of completed work based on monthly progress payment requests. In the event a dispute arises between the government agency and any prime contractor, which dispute is based upon increased costs claimed by one prime contractor occasioned by delays or other actions of another prime contractor, additional retainage in the sum of one and one-half times the amount of any possible liability may be withheld until such time as a final resolution is agreed to by all parties directly or indirectly involved unless the contractor causing the additional claim furnishes a bond satisfactory to the government agency to indemnify the agency against the claim. All money retained by the government agency may be withheld from the contractor until substantial completion of the contract.

(b) Department of General Services.–Notwithstanding subsection (a), when the Department of General Services is the government agency, the contract may include a provision for the retainage of a portion of the amount due the contractor to insure the proper performance of the contract except that the sum withheld by the department for the contractor shall not exceed 6% of the then total estimates until 50% of the contract is satisfactorily completed. The sum withheld by the department from the contractor after the contract is 50% satisfactorily completed shall not exceed 3% of the original contract amount.

In the absence of sufficient reason, within 20 days of the receipt of payment by the contractor, the contractor shall pay all subcontractors with which it has contracted their earned share of the payment the contractor received.

(a) The total cost of the improvement and maintenance of the State-aid highways constructed under the provisions of this act, as provided by the terms of the contract, or otherwise as herein provided, when properly certified by the Secretary of Highways, shall be audited by the Auditor General, and when audited and allowed shall be paid out of money specifically appropriated for this purpose, by warrants drawn therefor by the Auditor General upon the State Treasurer.

(b) The share of the county shall be paid as provided by its contract, and, otherwise, by the provisions of this act, to the State Treasurer by the county treasurer, upon the warrant of the county commissioners, in such sum or sums as shall be certified by the Secretary of Highways, from time to time, during the performance of the work or contract, or as provided by the contract, and, otherwise, by the provisions hereof, after the same shall be completed.

(c) The share of the township or townships, or of any borough or boroughs, or of any incorporated town or towns, shall be paid to the State Treasurer by the township supervisors or commissioners, or by the borough treasurer, or by the town treasurer, as the case may be, in the manner and form as in the case of counties, and as other debts of said townships or boroughs are paid, when and as demanded by certificate of the Secretary of Highways during the performance of the work or contract, or, in like manner, after the same shall be completed.

(d) Upon the completion of any State-aid highway improvement, or upon the ascertainment of any additional improvement cost, or of any maintenance expense, incurred thereon thereafter by the Department of Highways, the Secretary of Highways shall certify the same to the State Treasurer, and to the county commissioners and township supervisors, or borough or town authorities, as the case may be, the respective shares of said cost or expense for which the county, township, borough, or incorporated town is liable. If the said shares or amounts, so certified by the Secretary of Highways, of the cost and expense of the improvement, or of the subsequent maintenance thereof, as provided by contract and the provisions of this act, of the county, township, borough, or incorporated town, or all or either of them, shall not be paid to the State Treasurer within thirty days after being certified, then the said shares of the county, township, borough, or incorporated town, either or all of them, remaining unpaid, shall be charged by the State Treasurer against any funds of said county, township, borough, or incorporated town which may be in the hands of the State Treasurer, or which may thereafter come into his hands, excepting school funds, and may also be recovered by action at law or equity as any other debts of such counties, townships, boroughs, or incorporated towns are by law recoverable.

(e) The amounts paid under this act to the State Treasurer by the counties, townships, boroughs, and towns, shall be placed by him to the credit of the proper fund for highway construction or maintenance, and shall immediately be available for the use of the Department of Highways for construction or maintenance, as the case may be; and the Secretary of Highways is hereby authorized and empowered to apportion the said amounts, thus paid into the State Treasury by the counties, townships, boroughs, and incorporated towns, among the several counties as hereinbefore provided for.

(f) The Secretary of Transportation may make partial payments to any contractor performing any highway improvement, under this act, at semimonthly intervals, or more frequently from time to time, as the same progresses, upon estimates made by the Department of Transportation, beginning on the first estimate date established by the department following the date set forth in the notice to proceed or indicated in the special provisions. Five per centum (5%) of the amount due on partial payments or current estimates representing fifty per centum (50%) of the total contract price shall be withheld from the contractor pending completion: Provided, That the secretary may waive the withholding or reduce the amount of retainage if he is otherwise assured that the contract will be completed. Thereafter, no per centum of the amount due on partial payments or current estimates shall be withheld from the contractor pending completion: Provided, That the Secretary of Transportation may, in his discretion, make payments in excess of the percentages withheld when at least ninety-five per centum (95%) of the work contracted has been completed. If any amount is required by the secretary to be retained under this section, the amount retained under said contract for the work done and performed shall in all cases be sufficient to cover the contract price or estimated cost of the work remaining to be done to satisfactorily complete the contract.

(g) Deleted by amendment. 1981, Dec. 22, P.L. 521, No. 145, § 1, imd. effective.

(h) In addition to the payments herein authorized, the Secretary of Highways shall pay to the contractor interest at the rate of five (5) per centum per annum on the amount retained, and on the final payment due the contractor beginning ninety (90) days after the work under the contract has been completed and accepted by the Department of Highways and running until the date when such amount retained and final payment are tendered to the contractor.

(i) At the option of the contractor and in lieu of the payment of any interest as hereinbefore provided in subsection (h), amounts withheld pending completion of any highway improvement under this act may, in whole or in part, be withdrawn by the contractor as soon as such amounts are credited to his account under either of the hereinbefore mentioned methods for making partial and final payments upon depositing with the Secretary of Transportation securities of a market value equal to the amount so withdrawn. Such securities shall be of a character approved by the Secretary of [Highways] Transportation and shall include, but not be limited to, certificates of deposit issued by, or savings accounts in national or state banks authorized to do business in the Commonwealth, savings accounts in savings and loans, savings associations, building and loan associations and Federal savings and loan associations authorized to do business in the Commonwealth, bonds or notes of the United States of America, the Commonwealth of Pennsylvania, or any political subdivision thereof and, upon approval, such certificates of deposit, bonds, notes or other obligations as may be issued by any national or state bank, state savings association or Federal savings and loan association authorized to do business in the Commonwealth, authority, agency or instrumentality created by the United States of America, the Commonwealth of Pennsylvania, or any political subdivision thereof.

The Secretary of Transportation shall, from time to time, collect all interest or income on the securities so deposited and shall pay the same, when and as collected, to the contractor who deposited the securities. If the deposit be in the form of coupon bonds, the coupons as they respectively become due shall be delivered to the contractor. Upon default, the Secretary of Transportation may apply such securities, interest, coupons or income therefrom as may be necessary to correct said default and the contractor shall not be entitled to the balance thereof, if any, until the work remaining to be done under the contract has been satisfactorily completed.