Missouri Retainage Law
Dolley Law, LLC can provide experienced and knowledgeable legal counsel and litigation services to clients in disputes or having questions as to retainage of payments under private and public construction contracts in Missouri. While retainage amounts and rules vary between private and public contracts, the attorneys at our Firm know the laws at issue and can assist you in addressing or navigating any issue or dispute related to retainage.
What is Retainage?
Retainage refers to the deliberate withholding of a portion of an agreed-upon contract price or payment until the work under the contract is substantially complete. Such withholdings occur to assure a contracting party that the contractor or subcontractor will complete the construction project consistent with the terms of the contract.
Retainage in Private Construction Contracts in Missouri
Missouri law sets strict limitations on permissible retainage or withholdings during a construction project. See § 436.300, et seq. RSMo. Under Missouri law, “[a] contract or agreement may include a provision for the retainage of a portion of any payment due from the owner to the contractor, not to exceed ten percent [10%] of the amount of such payment due pursuant to the contract or agreement, to ensure the proper performance of the contract or agreement.” § 436.303 RSMo.
However, “the contract may provide that if the contractor’s performance is not in accordance with the terms of the contract or agreement, the owner may retain additional sums to protect the owner’s interest in satisfactory performance of the contract or agreement.” Id. If the owner retains such additional sums, they constitute “retainage” under the law and must “be held by the owner in trust for the benefit of the contractor and contractor’s subcontractors, sub-subcontractors, and suppliers at whatever tier who are not in default, in proportion to their respective interests.” Id.
Under Missouri law, contractors or subcontractors may tender “acceptable substitute security” to an owner or contractor, respectively, in lieu of having an owner retain payments under the contract. See §§ 436.306 (contractors), 436.309 (subcontractors). Missouri law defines what constitutes an “acceptable substitute security” (e.g., certificates of deposit, letters of credit, retainage bond issued by a surety company, etc.) and how such substitute securities must be handled. See § 436.312, et seq. RSMo.
Missouri law dictates how, when, and why such retainage or substitute security is released in a construction project. See § 436.324 RSMo. “Within thirty days of the project reaching substantial completion as defined in 436.327, all retainage or substitute security shall be released by the owner to the contractor less an amount equal to one hundred fifty percent [150%] of the costs to complete any remaining items.” Id. Section 436.327 defines “substantial completion” as “the occurrence of the earlier of the architect or engineer issuing a certificate of substantial completion in accordance with the terms of the contract documents or the owner accepting the performance of the full contract.” Missouri law further provides, upon receipt of the released retainage from the owner, “the contractor shall within seven  days release to each subcontractor that subcontractor’s share of the retainage.” § 436.324 RSMo.
Failing to comply with the terms of Missouri’s retainage laws may result in the imposition of damages, statutory interest at the rate of up to one and one-half percent per month from the date of such wrongful or improper withholding of retainage, and reasonable attorney fees of the prevailing party. See § 436.333 RSMo. As such, it is critical to retain knowledgeable legal counsel to ensure your payment practices under construction contracts are consistent with Missouri retainage law.
Retainage in Public Works Contracts in Missouri
Separate retainage rules and amounts apply in the context of public works contracts. See § 34.057 RSMo. The Missouri Public Prompt Payment Act describes these different rules, which are much more detailed than the rules applicable to private construction contracts. Id. For example, retainage amounts that can generally be withheld under public works contracts are capped at five percent (5%)—not ten percent (10%). See § 34.057.1(1) RSMo. The attorneys at our Firm are familiar with the retainage requirements of this statute and can advise you regarding your rights and obligations under it.
To further discuss a retainage matter under a private or public construction contract, contact Dolley Law, LLC by phone at (314) 645-4100 or by email at email@example.com.