In recent years, the Maryland Legislature has passed several laws addressing the issue of retention on construction contracts. Historically, an owner would hold back, or retain, ten percent of the balance due on an invoice to secure final completion. As a result, this ten percent hold back flowed down to each subcontractor and supplier.
Through various lobbying efforts, the Maryland legislature has passed several laws that reduce the retention to five percent or less. Specifically, there are three separate laws dealing with retention.
Private Work Contracts
The first deals with private contracts. In § 9-304 of the Real Property Article of the Maryland Annotated Code, the legislature provided that:
- Contract with Owner – If a construction contract is more than $225,000 and the contractor has a payment bond for value of the contract, the retention proceeds cannot exceed five percent.
- Subcontract – If the GC’s contract with the owner is more than $225,000, the subcontractor’s retention cannot exceed the GC’s retention percentage in the prime contract. If the GC is bonded, then the retention has to be five percent or less.
- Second tier subcontractor – Same as above.
Public Work Contracts – State of Maryland
The second statute addresses retention on projects with a primary procurement unit or the Department of Transportation for the State of Maryland and is found at § 13-225 of the State Finance and Procurement Article of the Maryland Annotated Code. Here, the legislature provided that where a contractor has provided 100 percent payment and performance bonds, retention cannot exceed five percent. Like the statute addressing private contracts, this statute provides that the retention for a subcontractor cannot exceed the retention withheld for a general contractor. This statute also provides that the retention may be held in an interest bearing escrow account.
Public Work Contracts – Local Governments and Other Governmental Units
The third statute addresses retention on projects with local governments and all other contracts with a governmental unit. This statute is part of Maryland’s Little Miller Act. In § 17-110, the legislature again provided that where the contractor has a 100 percent performance and payment bonds, retention cannot exceed five percent, and that the retention withheld to a subcontractor cannot exceed the retention withheld for the general contractor. This statute also provides that the local governmental body must release retention 120 days after completion.
In all instances the owner or GC may withhold more retention if there is a performance dispute. For any questions, please contact Matt Hjortsberg at firstname.lastname@example.org or 410-583-2400.