Who this applies to
Alabama splits retainage between two titles of its code, and which one governs depends on who owns the job.
Private work falls under chapter 8-29, with the retainage terms in § 8-29-3 [3]. The cap runs down every tier of the job: owner to contractor, contractor to subcontractor, and subcontractor to its own subcontractors [3]. Section 8-29-7 takes some work out of the chapter entirely, among it residential homebuilders and contracts with Alabama state or local government, and the unit and dollar thresholds for the other exclusions are set out in that section [3]. Projects built for or by an electric utility regulated by the Public Service Commission are outside subsections (h) to (l) of § 8-29-3 [3].
Public work falls under § 39-2-12, which governs the partial and final payments an awarding authority makes to its contractor [4]. Alabama Department of Transportation contracts for public highways, bridges and roads carry no retainage at all [4]. The partial-payment timing rules in § 39-2-12(b) and the attorney-fee provision in § 39-2-12(i)(3) do not apply to contracts administered by the Alabama Building Commission, and the section's payment provisions do not apply to disaster response and recovery contracts [4].
What the rule says
Both statutes measure the holdback the same way, against the estimated amount of work done plus materials stored on site or suitably stored and insured off-site, and both stop it at the halfway point. The private ceiling is 10% [3]; the public ceiling is 5% [4]. Once 50% completion has been accomplished, no further retainage may be withheld under either one [3] [4]. On a private job, a lower tier may not be held to a higher retainage percentage than the tier above it [3].
The release rules differ. A private owner releases retainage no later than 60 days [3] after the contractor's work under its contract is complete, or 60 days [3] after substantial completion of the project, whichever comes first, and in both cases with all necessary certificates of occupancy issued. A public awarding authority holds retainage until final completion and acceptance of all the work, unless the escrow or securities-deposit alternative in § 39-2-12(f) and (g) is used [4].
How to comply
- Match the percentage to the owner. A private contract that holds more than 10% [3], or a public contract that holds more than 5% [4], is above the statutory ceiling. Over-withholding on a private job carries interest of 1 percent per month on the excess [3].
- Watch the 50% line. Neither statute allows any further retainage from pay applications once 50% [3] completion is reached.
- Private release. Track the earlier of the two completion events, and the certificates of occupancy, against the 60-day [3] limit. A payment not made in compliance with the chapter draws 1 percent per month, 12% per annum, on the unpaid balance [3], and the prevailing party in a civil action recovers reasonable attorneys' fees, court costs and expenses under § 8-29-6 [3].
- Public closeout. Final payment becomes due 35 days [4] after the contractor presents a certified voucher, the release of claims and liens, and proof of advertisement. An agreement made after the contract is signed that stretches that 35-day [4] period is not enforceable. Late partial and final payments carry interest at the rate for underpayment of taxes under § 40-1-44(a) [4].
- Securities in place of cash. On public work, an escrow account or a deposit of securities can take the place of retained amounts where the awarding authority provides for it in the specifications or contract, under § 39-2-12(e) to (g) [4].
This page sets out what the two sections say; how they apply to a given contract is for the code sections in the Sources below, the contract itself and a lawyer.
What changed recently
Section 8-29-3 was enacted by Acts 1995, No. 95-380 [3], and its history note lists one later amendment, Act 2011-647 [3]. Section 39-2-12 dates from Acts 1947, No. 492 [4] and was last amended by Act 2012-379 and Act 2014-404 [4].
Related
- Retainage calculator: see what the holdback on a pay application comes to in dollars.
- Retainage laws by state: Alabama's two ceilings next to other states' rules.