By Lauren P. McLaughlin and Raziye “Raz” Andican of Smith Currie
Most contracts address the manner in which retainage will be withheld, reduced, and released. As such, it is imperative that construction industry participants comply with their rights and obligations outlined in the contract as it pertains to retention. Keep in mind, however, that industry groups have lobbied in various jurisdictions for legislation governing retainage on both public and private projects. This means that it is vital that companies are not only aware of what their contract says regarding retainage, but also, they must keep abreast of retainage laws in the jurisdictions in which they are building projects. Retainage laws vary from state to state. For those practicing in the DMV region, the chart below provides a “cliff note” version of the governing statutes affecting owners, contractors, and subcontractors in the District of Columbia, Maryland, Virginia, and federal projects.
The information in this chart is current as of April 27, 2021 but should not be relied upon as accurate, timely, or fit for any particular purpose. The content of this chart is provided for general information purposes only and does not constitute legal or other professional advice or opinion of any kind.
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Retainage Laws in DC/MD/VA for Private, State, and Federal Projects
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| Venue |
Governing Statutes
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Retainage By Owner |
Retainage by Contractors |
Retainage by Subcontractors |
Additional Guidance |
| Federal Projects |
48 C.F.R. § 32.103 and § 52.232-27 |
Retention up to a maximum of 10% of the contract. See 48 C.F.R. § 32.103 |
No regulation. See § 52.232-27 |
No regulation. |
Retainage "may be adjusted as the contract approaches completion to recognize better than expected performance, the ability to rely on alternative safeguards, and other factors. Upon completion of all contract requirements, retained amounts shall be paid promptly." See 48 C.F.R. § 32.103.
FAR 52.232-27(d)(1) permits "the Contractor or a subcontractor to retain (without cause) a specified percentage of each progress payment otherwise due to a subcontractor for satisfactory performance under the subcontract without incurring any obligation to pay a late payment interest penalty, in accordance with terms and conditions agreed to by the parties to the subcontract, giving such recognition as the parties deem appropriate to the ability of a subcontractor to furnish a performance bond and a payment bond." |
| District of Columbia Public Projects |
D.C. Code § 2-203.01. |
requires a minimum of 10% retention |
No regulation. |
No regulation. |
On all contracts, 10% shall be retained. Once 50% completion of the work is reached, the mayor has discretion to eliminate or reduce the retention. |
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DC Private Projects
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No regulation. |
No regulation. |
No regulation. |
No regulation. |
No regulation. |
| Maryland Public Projects |
Md. Code Ann., State Fin. & Proc. § 17-110 |
Retention up to a maximum of 5% of the contract (when contractor has furnished 100% payment and performance security). |
Not more than the retainage by the public body. See Md. Code Ann., State Fin. & Proc. § 17-110(c)(1). |
Not more than the payments retained from the contractor. Md. Code Ann., State Fin. & Proc. § 17-110(d)(1). |
A public body may withhold from payments otherwise due a contractor any amount that the public body reasonably believes necessary to protect the public body's interest. See Md. Code Ann., State Fin. & Proc. § 17-110(b)(2).
A contractor/ subcontractor is not prohibited from withholding any amount in addition to retainage if the contractor determines that a subcontractor's performance provides reasonable grounds for withholding the additional amount. Md. Code Ann., State Fin. & Proc., § 17-110(c)(2).
Retainage must be released 120 days after satisfactory completion or resolution of any disputes. Md. Code Ann., State Fin. & Proc. §§ 17-110(b)(3) and (b)(4). |
| Maryland Private Projects |
Md. Code Ann., Real Prop. §§ 9-304 to 9-305 |
Retention up to a maximum of 5% for contracts above $100,000 (when 100% payment security and performance security furnished). |
Retainage from the contractor to the subcontractor may not exceed the percentage of retention from the owner to the contractor. See Md. Code Ann., Real Prop. § 9-304(c)(2). |
Retainage from the subcontractors may not exceed the percentage of retention from the contractor. See Md. Code Ann., Real Prop. § 9-304(c)(3). |
The law does not prohibit withholding of any amount due from the owner to the contractor, contractor to subcontractor, or subcontractor to another subcontractor if the non-paying party reasonably determines that the contractor or subcontractor's performance under the contract provides reasonable ground for withholding the additional amount. See Md. Code Ann., Real Prop. § 9-304(d).
Undisputed retention proceeds held by an owner shall be paid within 90 days after date of substantial completion as defined in the contract or subcontract. See Md. Code Ann., Real Prop. § 9-304(e).
Law also does not apply to contracts for single family homes, contracts under $100,000, or contracts funded by the Maryland Department of Housing and Community Development, home improvement contracts by Maryland-licensed home improvement contractors, or contracts covered by the Custom Home Protection Act. See Md. Code Ann., Real Prop. § 9-305. |
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Virginia Public Projects
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Va. Code Ann. § 2.2-4333 |
Up to a maximum of 5%. |
Up to a maximum of 5%. |
Up to a maximum of 5%. |
On public contracts exceeding $200,000, a contractor may place the retained funds in an escrow account; this option must be exercised in the bid proposal. Va. Code Ann. § 2.2-4334. |
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Virginia Private Projects
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No regulation. |
No regulation. |
No regulation. |
No regulation. |
No regulation. |
Lauren P. McLaughlin is a partner in the Tysons, Virginia office of Smith Currie & Hancock LLP. She has represented owners, developers, contractors, subcontractors, sureties and design professionals in all aspects of public and private construction projects. With that perspective, she counsels clients on project risk management and litigation avoidance. Lauren has successfully tried dozens of complex cases in state and federal courts throughout Maryland, Virginia, Pennsylvania, New York, and the District of Columbia, as well as before arbitral panels, administrative boards and boards of contract appeals. She can be reached at lpmclaughlin@smithcurrie.com or 703.506.1990.
Raziye “Raz” Andican, an attorney in the Tysons, VA office of Smith Currie & Hancock, focuses her practice on surety defense, real property disputes , and construction litigation, including filing and enforcing mechanic’s liens and representing owners, general contractors, and suppliers in various construction disputes. She can be reached at randican@smithcurrie.com or 703.506.1990.