The New Mexico chapter of the American Subcontractors Association (ASA) proclaimed success when Gov. Gary Johnson (R) signed a bill into law limiting retainage on Mar. 16, 2001.
The Retainage Act (H.B. 320) requires owners and contractors to place retainage in an interest-bearing escrow account in trust for the party to which it is owed. The law also limits the time owners and contractors have to make progress payments for work over which there is no dispute about payment. The law applies to both public and private construction work.
The Alexandria, Va.-based ASA has been engaged in a nationwide campaign against retainage, a practice in which one party holds part of the funds owed to another party as security, usually until a project is completed. The practice causes several subcontractors to suffer financially, particularly the early-finishing trades, which may not receive final payment for their work for months.
“With this law, ASA of New Mexico set an example of how to make change happen,” says ASA President Richard Kohls, vice president of finance of The Fenton Rigging Co., Cincinnati. “ASA of New Mexico explained the problems to legislators and persisted in the anti-retainage campaign. Subcontractors can see that they are not powerless over their futures.”
The law limits retainage held by the owner to 5% and requires that interest on retainage be paid on a pro rata basis to the party to which it is owed. It also requires owners to pay contractors within 21 days.
By passing this law, New Mexico joins several other states, notably Connecticut and Maryland, that have passed legislation restricting retainage in recent years.