Minnesota Retainage Guide and FAQs

Minnesota state law does not provide a specific retainage statute for private projects.

Subdivision 1. Application of laws of another state. — Provisions contained in, or executed in connection with, a building and construction contract to be performed inMinnesota making the contract subject to the laws of another state or requiring that any litigation, arbitration, or other dispute resolution process on the contract occur in another state are void and unenforceable.

Subdivision 2. Waiver of lien or claim. — Provisions contained in, or executed in connection with, a building and construction contract requiring a contractor, subcontractor, or material supplier to waive the right to a mechanics lien or to a claim against a payment bond before the person has been paid for the labor or materials or both that the person furnished are void and unenforceable. This provision shall not affect the validity of a waiver as to any third party who detrimentally relies upon the waiver.

Subdivision 3. Prompt payment to subcontractors. — A building and construction contract shall be deemed to require the prime contractor and all subcontractors to promptly pay any subcontractor or material supplier contract within ten days of receipt by the party responsible for payment of payment for undisputed services provided by the party requesting payment. The contract shall be deemed to require the party responsible for payment to pay interest of 1- 1/2 percent per month to the party requesting payment on any undisputed amount not paid on time. The minimum monthly interest penalty payment for an unpaid balance of $ 100 or more is $ 10. For an unpaid balance of less than $ 100, the party responsible for payment shall pay the actual penalty due to the party requesting payment. A party requesting payment who prevails in a civil action to collect interest penalties from a party responsible for payment must be awarded its costs and disbursements, including attorney fees incurred in bringing the action.

Subdivision 4.  Progress payments and retainages.

(a) Unless the building and construction contract provides otherwise, the owner or other persons making payments under the contract must make progress payments monthly as the work progresses. Payments shall be based upon estimates of work completed as approved by the owner or the owner’s agent. A progress payment shall not be considered acceptance or approval of any work or waiver of any defects therein.

(b) Unless the building and construction contract provides otherwise, an owner or owner’s agent may reserve as retainage from any progress payment on a building and construction contract an amount not to exceed five percent of the payment. An owner or owner’s agent may reduce the amount of retainage and may eliminate retainage on any monthly contract payment if, in the owner’s opinion, the work is progressing satisfactorily.

(c) This subdivision does not apply to contracts for professional services as defined in sections 326.02 to 326.15.

Subdivision 5.  Definition. — For the purpose of this section, “building and construction contract” has the meaning given the term in section 337.01.

Subdivision 1. Monthly payments. — Unless the terms of the contract provide otherwise, a public contracting agency shall make progress payments on a public contract for a public improvement monthly as the work progresses. Payments shall be based upon estimates of work completed as approved by the public contracting agency. A progress payment shall not be considered acceptance or approval of any work or waiver of any defects therein.

Subdivision 2. Retainage. — A public contracting agency may reserve as retainage from any progress payment on a public contract for a public improvement an amount not to exceed five percent of the payment. A public agency may reduce the amount of the retainage and may eliminate retainage on any monthly contract payment if, in the agency’s opinion, the work is progressing satisfactorily.

§ 15.73: Alternative Form of Retainage

Subdivision 1.Contractor’s option. — At the option of the contractor, retainage shall be paid to the contractor in accordance with this section.

Subdivsion 2. Security. — The contractor may deposit bonds or securities with the public contracting agency or in any bank or trust company to be held in lieu of cash retainage for the benefit of the public contracting agency. In that event the public agency shall reduce the retainage in an amount equal to the value of the bonds and securities and pay the amount of the reduction to the contractor. Interest on the bonds or securities shall be payable to the contractor as it accrues.

Subdivision 3. Approval required. — Bonds and securities deposited or acquired in lieu of retainage, as permitted by subdivision 2, shall be of a character approved by the commissioner of management and budget, including but not limited to:

(1)  bills, certificates, notes or bonds of the United States;
(2) other obligations of the United States or its agencies;
(3) obligations of any corporation wholly owned by the federal government; or
(4) indebtedness of the Federal National Mortgage Association.

Subdivision 4. Recovery of additional costs. — If the public agency incurs additional costs as a result of the exercise of the option described in this section, the agency may recover the costs from the contractor by reducing the final payment due under the contract. As work on the contract progresses, the agency shall, upon demand, inform the contractor of all accrued costs.