In this blog presented by SunRay Construction Solutions and Emily Pendleton, a Texas Construction Lien Law expert, we delve into the essential strategies and guidelines to safeguard your rights to retainage, and ensure you receive what's rightfully yours in the world of construction. Join us on this enlightening journey to fortify your knowledge and protect your retainage rights.
What is Contractual Retainage?
Contractual retainage is a crucial aspect of construction projects, involving the withholding of a percentage of money by the upstream party according to the contract terms. This retention is intended to ensure that work is completed satisfactorily. Typically, retainage amounts to 10% of the contract value, although this can vary based on negotiations. These funds are held until the work is completed, either for a specific subcontractor's scope or for the entire project.
What is the Purpose of Contractual Retainage?
Contractual retainage exists for several reasons, with a primary focus on protecting the interests of lien claimants. In Texas, project owners are required by law to withhold 10% of each invoice from the general contractor. To mitigate this financial burden, contractors often pass down this requirement to subcontractors through contractual retainage provisions. This arrangement ensures that lien claimants have access to funds they are entitled to when properly executing a lien.
Challenges in Securing Contractual Retainage
- Contractual retainage can pose challenges, particularly during project completion.
- Owners might delay releasing retained funds due to unresolved construction matters.
- Subcontractors may face uncertainty about when they'll receive their contractual retainage.
- It's crucial to safeguard your interests to ensure the timely receipt of contractual retainage.
Navigating the Legal Requirements
To safeguard your right to contractual retainage, you must navigate specific legal requirements. Here are some key considerations:
Timely Notice: It is crucial to send timely notice to perfect your lien claim for unpaid contractual retainage. The notice should be provided to the original contractor and the owner.
Here is the Form Notice to be used -
Deadline for Notice: The deadline for providing notice of unpaid retainage is typically the earlier of the 30th day after the date the claimant's contract is completed, terminated, or abandoned.
Recording the Lien: The deadline for recording the lien is the 15th day of the third month after the month in which the original contract is completed. Timely recording is essential to protect your claim.
How to Perfect Claims on Bonded Projects?
Transitioning to bonded projects, there are two essential methods to perfect claims for private bonded projects.
Bonded Projects: On private bonded projects, you can either follow the lien perfection procedures or send notice of unpaid retainage to the general contractor and the surety within 30 days of completing your work. When there’s a Chapter 53 payment bond in place, subcontractors with a direct contract with the general contractor are not required to give notice to perfect a claim for retainage.
Public Bonded Projects: For first-tier subcontractors on public bonded projects, sending notice to the general contractor and the surety within 90 days of project completion is crucial. Second-tier and lower subcontractors have additional notice obligations.
What should the Notice include for first-tier subcontractors on public bonded projects?
The Notice Contents must include:
- Amount of the Contract
- Any Amount Paid
- The Outstanding Balance
First Tier vs. Second Tier Subcontractors
In the context of public bonded projects, the main difference between first tier and second-tier subcontractors regarding notice requirements is the deadline. First-tier subcontractors are required to send notices within 90 days of project completion, while second tier and lower-tier subcontractors face a shorter window for sending their notices, starting from the 15th day of the second month after beginning their work.
Securing your contractual retainage rights in the construction industry is essential to ensure you receive the funds you are owed. Understanding the legal requirements and deadlines is critical to successfully navigating the process. We hope the webinar provided valuable insights into this complex topic, and we hope this blog recap has shed light on the key points discussed. If you have any further questions or need assistance, feel free to reach out to Sunray Construction Solutions. Thank you for reading, and we hope to see you at our next informative webinar.
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