By contract or statutory requirement, a construction project owner retains money from a contractor’s monthly payment. The amount deducted from the contractor’s invoice, called retainage, is usually 10%. Thus, a contractor improves the owner’s property and only receives 90% of the value of the improvement. The monthly retainage should be accumulated by the owner until the end of the project when the owner pays retainage to the contractor. When there is a loan financing part of the project, the owner borrows only the 90% paid to the contractor each month. The 10% that is deducted from the contractor’s payment each month is never retained by the owner. Thus, in the event the bank forecloses, the 10% the owner deducted is not available to pay the contractor.
The Retainage Trust Fund bill for the 84th Texas Legislature has been filed. Read HB 1966 for more information.
For Talking Points<on Retainage Trust Fund for communication with legislators and their staff, click HERE.
For the STATUS of Retainage Trust Fund, visit http://www.capitol.state.tx.us/ Enter the bill number in the box.
For Issue Brief on Retainage Trust Fund, click HERE.
Legislation is needed that will require the project owner to set aside the retainage in a trust account (simple checking account) each month. In the alternative, the owner can purchase a retainage bond to secure the payment of the retainage.
In 2013, Retainage Trust Fund legislation was filed and considered by the House, but died on the House floor. Read 2013 Retainage Trust Fund Legislation. In 2011, a Retainage Trust Fund bill was also filed, but died in the House Calendars Committee. Read 2011 Retainage Trust Fund Legislation.
A Retainage Trust Fund bill is expected to be filed for the 2015 legislative session. To view the draft of the legislation, click on the following link. Read 2015 Draft Retainage Trust Fund Legislation.
Below is a link to the retainage provision found in the Texas Property Code.