The Commonwealth of Massachusetts has a new retainage law applicable to most private construction projects that took effect on Nov. 6, 2014. The Retainage Law limits retainage to 5 percent of each payment and regulates the ability of owners and contractors to negotiate retainage, punchlist, and substantial completion provisions of certain private construction contracts. It applies to construction contracts with an original contract price of not less than $3 million provided the project is lienable under the Massachusetts mechanic’s lien law (i.e., contracts with prime contractors, all first- and second-tier subcontractors, and all first- and second-tier suppliers). Residential construction projects consisting of four or fewer units are exempt regardless of the contract value. All construction contracts executed after the effective date are subject to the new law.

The Retainage Law limits the amount of retainage withheld from each progress payment to no more than five percent of the payment. The law also specifically defines “substantial completion” as the stage of the project (or phase thereof, if applicable) at which work “is sufficiently complete...so that the project owner may occupy or utilize the work for its intended use.” Any contract terms which conflict with this new statutory definition are void and unenforceable.