Under new rules announced by the U.S. Transportation Department last week, prime contractors must pay subcontractors within 30 days of being paid by the contracting agency.
The rules, which go into effect July 16, were adopted to help define retainage regulations and, according to the American Road & Transportation Builders Association, could help make the federal Disadvantaged Business Enterprise program more flexible.
While retainage is sometimes used by prime contractors to ensure a subcontractor’s work is done well, it has been abused in the past to withhold pay even after satisfactory work has been completed. The new rules modify the old DBE regulations, which required prime contractors in many states to pay retainage to subcontractors, sometimes before they had been paid by the state transportation department or another contracting agency.
“The new regulations should provide contractors with some real relief by strongly encouraging state DOTs and other contracting agencies to end the practice of holding retainage,” said Greg Smith, contractors division managing director for ARTBA.
The newly adopted regulations state that retainage can be handled in three ways:
· Recipients, state DOTs or contracting agencies can eliminate retainage entirely. This would include prohibiting prime contractors from withholding retainage from subcontractors.
· Recipients can stop withholding retainage on prime contractors, but still allow primes to withhold from subcontractors. However, primes must return retainage to the sub within 30 days of satisfactory completion of work.
· Recipients can continue to withhold retainage on the prime contractor, but will then have to make incremental inspections and approvals and must return a portion of the retainage to the prime based on approvals within 30 days.
For a copy of the full U.S. DOT rules, click on the link to the right.