House Bill 1301

AN ACT TO ESTABLISH A MAXIMUM AMOUNT OF RETAINAGE AND ESTABLISH THE TIMING FOR RELEASE OF RETAINAGE WITH RESPECT TO THE PERFORMANCE OF CONSTRUCTION CONTRACTS AND TO PROVIDE FOR THE PAYMENT OF INTEREST FOR IMPROPERLY HELD RETAINAGE; TO DEFINE CERTAIN TERMS FOR THE PURPOSES OF THIS ACT; TO PROVIDE TYPES OF CONTRACTS TO WHICH THE PROVISIONS OF THIS ACT DO NOT APPLY; TO AMEND SECTION 31-5-33, MISSISSIPPI CODE OF 1972, TO DEFINE THE TERM "RETAINAGE" FOR PURPOSES OF CERTAIN PUBLIC WORKS CONTRACTS; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. (1) For the purposes of this section, the following words and phrases shall have the meanings ascribed in this section unless the context clearly indicates otherwise:

(a) "Retainage" means 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, as the case may be, for work properly performed or materials suitably stored if payment for stored materials is provided for in the contract, which has been retained by the owner conditioned on final completion and acceptance of all work in connection with a project or projects by the contractor, subcontractor or lower tier sub-subcontractor or supplier.

(b) "Final Completion" shall mean the stage of the project at which all work has been completed in accordance with the contract requirements, including, but not limited to, the completion of punch list items, the submission of contractual close-out documents, equipment manuals, warranty documents or other like required deliverables.

(2) (a) A construction contract on any project in this state may provide for the owner's withholding of retainage from payments to its contractor for work performed by that contractor on a construction project. However, there may not be retained more than five percent (5%) of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site. After the contractor has completed fifty percent (50%) of the work in substantial compliance with the contract requirements and thereafter remains in substantial compliance with the contract requirements, no further retainage may be withheld. If an owner withholds an amount greater than that allowed by this paragraph (a), the owner shall be liable to the contractor for interest accruing on the excess amount withheld at the rate of one percent (1%) per month.

(b) A construction contract on any project in this state may provide for the contractor's withholding of retainage from payments to its subcontractors for work performed by the subcontractors on a construction project. However, there may not be retained more than five percent (5%) of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site. After the subcontractor has completed fifty percent (50%) of the work in substantial compliance with the subcontract requirements and thereafter remains in substantial compliance with the subcontract requirements, no further retainage may be withheld. If a contractor withholds an amount greater than that allowed by this paragraph (b), the contractor shall be liable to the subcontractor for interest accruing on the excess amount withheld at the rate of one percent (1%) per month.

(c) A construction contract on any project in this state may provide for the subcontractor's withholding of retainage from payments to its sub-subcontractors or material suppliers for work performed by such sub-subcontractors or material suppliers on a construction project. However, there may not be retained more than five percent (5%) of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site. After the sub-subcontractor has completed fifty percent (50%) of the work in substantial compliance with the sub-subcontract requirements and thereafter remains in substantial compliance with the sub-subcontract requirements, no further retainage may be withheld. If a subcontractor withholds an amount greater than that allowed by this paragraph (c), the subcontractor shall be liable to the sub-subcontractor or material supplier for interest accruing on the excess amount withheld at the rate of one percent (1%) per month.

(d) The five percent (5%) retainage described in paragraphs (a), (b) and (c) of this subsection shall apply to all items of work required to achieve final completion. Any amounts held above the five percent (5%) for items of work required to achieve final completion shall be subject to interest accruing on the excess amount at the rate of one percent (1%) per month.

(3) The owner shall release and pay retainage to the contractor for work completed on any construction contract no later than sixty (60) days after the final completion of the contractor's work provided all necessary certificates of occupancy have been issued. The contractor shall release and pay retainage to its subcontractors and subcontractors shall release and pay retainage to their sub-subcontractors for work completed pursuant to the requirements of Section 87-7-5, Mississippi Code of 1972.

(4) Nothing in this section limits or alters the paying party's right to withhold or not approve payment on grounds set forth in the party's contract, subcontract or sub-subcontract for work not properly performed or payment not earned; rather, this section is intended only to establish a maximum amount of retainage and provide for the payment of interest for improperly held retainage. Also, the paying party may condition payment on the receipt of payment from the party with whom the paying party contracted and a full release of any lien of the contractor, subcontractor or sub-subcontractor, as the case may be, for the amount of work being paid.

(5) A party may not waive by contract or otherwise the right to receive interest, as provided for in this section.

(6) A contractor, subcontractor or sub-subcontractor may file a civil action solely against the party contractually obligated for the payment of the amount claimed to recover the amount due plus the interest accrued in accordance with this section. If the court finds in the civil action that the party contractually obligated for the payment of the amount claimed has not made payment in compliance with this section, the court shall award the interest specified in this section in addition to the amount due. In any such civil action, the party in whose favor a judgement is rendered shall be entitled to recover payment of reasonable attorneys' fees, court costs and reasonable expenses from the other party.

(7) This section does not apply to the following:

(a) Residential homebuilding.

(b) Improvements to real property intended for residential purposes which consist of sixteen (16) or fewer residential units.

(d) Contracts awarded by the State of Mississippi, or any agency, unit or department of the State of Mississippi, or by any political subdivision thereof.

(8) This section does not amend or modify existing laws relating to mechanics and materialmen liens provided in Article 21, Chapter 7, Title 85, Mississippi Code of 1972.

(9) The rights and obligations created in this section cannot be modified or waived by any oral or written contract or agreement.

(10) The provisions of this section shall become effective for and apply to all contracts, as described in this section, entered into on or after July 1, 2024.

SECTION 2. Section 31-5-33, Mississippi Code of 1972, is amended as follows:

31-5-33. (1) In any contract for the construction, repair, alteration or demolition of any building, structure or facility awarded by the State of Mississippi, or any agency, unit or department of the State of Mississippi, or by any political subdivision thereof, which contract provides for progress payments in installments based upon an estimated percentage of completion with a percentage of the contract proceeds to be retained by the state agency, unit or department, or by the political subdivision or contractor pending completion of the contract, such retainage shall be five percent (5%), and the amount retained by the prime contractor from each payment due the subcontractor shall not exceed the percentage withheld by the state, or any agency, unit or department of the state, or by any political subdivision thereof, from the prime contractor. For the purposes of this section and Section 31-5-15, the term "retainage" means 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, as the case may be, for work properly performed or materials suitably stored if payment for stored materials is provided for in the contract, which has been retained by the owner conditioned on final completion and acceptance of all work in connection with a project or projects by the contractor, subcontractor or lower tier sub-subcontractor or supplier.

On any contract as described herein, of which the total amount is Two Hundred Fifty Thousand Dollars ($250,000.00) or greater, or on any contract with a subcontractor, regardless of amount, five percent (5%) shall be retained until the work is at least fifty percent (50%) complete, on schedule and satisfactory in the architect's and/or engineer's opinion, at which time fifty percent (50%) of the retainage held to date shall be returned to the prime contractor for distribution to the appropriate subcontractors and suppliers. Provided, however, that future retainage shall be withheld at the rate of two and one-half percent (2-1/2%).

(2) The provisions of this section shall not apply to contracts let by the Mississippi Transportation Commission for the construction, improvement or maintenance of roads and bridges.

SECTION 3. This act shall take effect and be in force from and after July 1, 2024.