Changes in Alabama’s Retainage Laws

by Baker Donelson
Contact

Introduction

The Alabama Code was recently amended in a number of important ways affecting the retainage that may be withheld on private construction projects in Alabama.  These changes took effect on September 1, 2011, and only contracts executed on or after that date are subject to the new law.  Importantly, these changes did not affect the retainage that may be withheld on public projects.

Percent Retainage Allowed on Private Projects

For private projects in Alabama for which contracts were entered into on or after September 1, 2011, the law now caps retainage at 10 percent of the estimated amount of work properly done until the job is 50 percent complete.  See Ala. Code § 8-29-3.  Once the job is halfway complete, no additional retainage may be held.  Id.  Thus, for the first half of the job, the paying party may withhold 10 percent of each pay application. For the second half of the job, the paying party may continue to hold the retainage kept from the work performed in the first half, but it cannot withhold any new retainage for the remaining work.  Therefore, the effective cap on total retainage over the course of a private project is 5 percent of the contract amount. 

Additionally, a contractor may not withhold a higher percentage retainage from its subcontractors than the owner withholds from that contractor. See Ala. Code § 8-29-3(f).  Similarly, a subcontractor may not withhold a higher percentage retainage from its sub-subcontractors than the contractor withholds from the subcontractor.  See Ala. Code § 8-29-3(g). 

Importantly, these retainage provisions do not apply to contracts with the state or local governments of Alabama, for residential homebuilders, or for contracts for less than $10,000.  See Ala. Code § 8-29-7. 

Percent Retainage Allowed on Public Projects

In contrast, the law regarding retainage on public projects has not changed.  On public projects, only 5 percent of the estimated amount of work properly done may be withheld on the first half of the job, and no further retainage may be withheld after the project is 50 percent complete.  Ala. Code § 39-2-12.  Accordingly, the effective cap on total retainage over the course of a public project is 2.5 percent of the contract amount.  Alternatively, in certain circumstances, the public awarding authority may forego withholding retainage on public projects if it instead requires the contractor to either (1) maintain an escrow account, or (2) deposit certain securities.  Ala. Code § 39-2-12(e)(f)(g). 

Nevertheless, no retainage may be withheld by “on contracts entered into by the Alabama Department of Transportation for the construction or maintenance of public highways, bridges, or roads.” Ala. Code § 39-2-12(c). 

Definitions of Retainage

Finally, while similar, the definition of “retainage” is slightly different in the statutory provisions for private and public projects.  For private projects, “retainage” is "that money, or other security as agreed to by the parties to a construction contract, earned by the contractor, subcontractor or lower tier sub-subcontractor, or supplier for work properly performed or materials suitably stored . . . which has been retained by the owner conditioned on final completion and acceptance of all work in connection with a project."  See Ala. Code 8-29-3(h).  Conversely, for public projects, “retainage” is “That money belonging to the contractor which has been retained by the awarding authority conditioned on final completion and acceptance of all work in connection with a project or projects by the contractor.” 39-2-12(a)(3).

Conclusion    

Retainage remains an important tool for parties to both private and public construction contracts in Alabama, and owners and contractors of all levels should understand the limitations and alternatives to retainage that may be available on a given project.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson
Contact
more
less

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.