Who this applies to
Minnesota writes its retainage rules twice, once for each kind of owner, and keeps the two versions close.
- Private work falls under § 337.10, subdivision 4, which covers building and construction contracts [1]. It does not reach a public agency as defined in § 15.71, subd. 3, or contracts for professional services under §§ 326.02–326.15 [1].
- Public work falls under § 15.72, subdivision 2, which governs what a public contracting agency may reserve from progress payments on a public contract for a public improvement [2].
Subcontractors are carried along on both sides. When an owner or agency lowers the retainage it holds, the contractor must lower subcontractor retainage at the same rate [1][2].
What the rule says
The ceiling is 5% on both sides [1][2], though the two statutes word it differently. On a private contract, retainage may not exceed 5% [1]; on a public one, the agency may reserve no more than 5% of each progress payment [2]. On the private side nothing requires retainage to be withheld at all, and the owner may reduce it or drop it from any monthly payment when, in its opinion, the work is progressing satisfactorily [1]. A public agency may likewise reduce or eliminate retainage on any monthly payment when it judges the work to be progressing satisfactorily [2]. Neither kind of owner may withhold retainage for warranty work [1][2]. Release of all retainage is due no later than 60 days after substantial completion, a milestone both statutes take from § 541.051, subd. 1(a) [1][2]. For public street and highway work, bridges included, substantial completion is instead the date when construction-related traffic devices and ongoing inspections are no longer required [2].
How to comply
What can still be held after substantial completion. On a private job the owner may keep up to 250% of the cost to correct or complete work known at that time, payable within 60 days after that work is completed [1]. It may also keep 1% of the contract value or $500, whichever is greater, until the final paperwork arrives, payable within 60 days after the paperwork is submitted [1]. A public agency has the same two carve-outs, each payable within 60 days [2].
Passing money down on a private job. Retainage owed to a subcontractor must reach it within ten days of the contractor being paid [1]. Undisputed amounts paid late anywhere in the prime-to-subcontractor chain, retainage included, carry interest of 1.5% per month [1]. On an unpaid balance of $100 or more, the minimum monthly penalty is $10 [1]. A claimant who prevails recovers costs and attorney fees, and a party whose undisputed payment has not arrived within ten days may suspend work [1]. That interest rule runs down the chain only; § 337.10 names no rate for an owner who is late releasing retainage to the prime contractor [1].
Aided public projects. On a project with federal or state aid, the agency need not pay the aided portion until the aid is received [2].
Compare these points with the retainage, completion and closeout clauses of your contract, and read both sections in the Sources below before relying on this summary.
What changed recently
Section 337.10's history runs from 1997 c 127 s 1 through 1Sp2019 c 7 art 9 s 13 [1]. Section 15.72 dates from 1980 c 464 s 2 and was changed by 1Sp2019 c 7 art 9 s 1 and 2023 c 53 art 7 s 3 [2]. Minnesota's Revisor of Statutes also marks § 15.72 as affected by law enacted in the 2026 Regular Session, which added a subdivision 1a (2026 c 90 s 1) [2]. Read the current section, including that subdivision, before relying on the public rule described here.
Related
- Retainage calculator: works out retainage held and the payment due for a pay application.
- Retainage laws by state: the equivalent pages for other states.