Who this applies to
Iowa's retainage chapter, chapter 573 of the Iowa Code, is written for public improvements paid for from public funds [1]. The bodies it binds are public corporations: the state, counties, cities, public school corporations, and any officer, board or commission empowered by law to contract for public improvements [1]. Its limit also reaches one tier down, to what a contractor keeps from a subcontractor [1].
Private jobs fall outside those definitions, so chapter 573 sets no cap or release date for them [1]. This page covers public work only; on a private job, the contract and a lawyer answer the retainage question.
What the rule says
A public corporation may keep no more than 3% [1] of each monthly payment, measured on the amount the architect's or engineer's estimate shows as due, and a contractor may keep from a subcontractor no more than 3% or the amount the subcontract specifies, whichever is lower [1]. What is kept becomes a fund that stays with the public body for 30 days [1] after the improvement is completed and finally accepted. Claims can be filed against that fund; when the period ends, the contractor receives all of it if none are on file, or the remaining balance if some are.
How to comply
- Check both tiers. Compare the prime contract and each subcontract with the 3% [1] ceiling. Section 573.13 repeats that the retained percentage is in no case more than 3% [1].
- Ask early. Any time after the work is substantially complete, the contractor may request early release of retained funds under § 573.28. Approved funds are paid at the next monthly payment or within 30 days [1], whichever comes sooner.
- Mark the final dates. Under § 573.14(2), final payment that is not made within 40 days [1] after the work is completed and accepted and all required documentation is furnished, or within up to 50 days [1] where the contract so specifies, draws interest from the 31st day after completion [1]. The rate is the public-funds rate under § 12C.6, or prime plus 1% for institutions under chapter 262 [1].
- Late early release. Under § 573.28(2)(b), retained funds not released within 30 days [1] of when payment becomes due accrue interest at prime plus 1% [1] a year until paid.
- Progress payments. Late progress payments carry interest under § 573.12(2)(a) [1].
Before relying on these dates, set them beside the chapter itself, linked in the Sources below, and beside the payment terms of your own contract.
What changed recently
The ceiling was 5% until 2025 Iowa Acts chapter 29 (S.F. 574) lowered it to 3%, effective July 1, 2025 [1]. The 3% figure now governs both what the public corporation retains and what a contractor retains from a subcontractor [1].
Related
- Retainage calculator: set the rate to Iowa's public ceiling and see what each pay application holds back.
- Retainage laws by state: how Iowa compares with other states.