Who this applies to
This page covers two New York retainage laws, one for private construction and one for public owners.
The private rule is § 756-c of the General Business Law, part of the Prompt Payment Act in article 35-E [1]. It binds every tier of the chain: an owner retaining from its contractor, and a contractor or subcontractor retaining from the party below it [1].
The public rule is § 106-b of the General Municipal Law, which covers political subdivisions as public owners; a contractor may withhold the same percentages from its subcontractors [2]. Construction contracts of state agencies are not covered on this page.
What the rule says
The private cap is measured against the contract sum and rests on the parties' agreement: by mutual agreement an owner may retain no more than 5% of it, and a contractor or subcontractor may retain no more than 5% and in no case more than the percentage the owner actually retains [1]. The public cap is measured against each progress payment instead: not more than 5%, rising to at most 10% only where the public owner does not require the contractor to furnish both a performance bond and a labor and material bond in the full amount of the contract [2]. Neither percentage steps down during the job [1] [2].
How to comply
Private contracts
- Set the retainage clause beside 5% of the contract sum [1]. In a subcontract, set it beside the percentage the owner is actually holding as well [1].
- The owner releases retainage to the contractor no later than 30 days after final approval of the work [1].
- Interest of 1% per month runs against any owner, contractor or subcontractor that fails to release retainage as required, starting from the date the retention was due and owing [1].
Public contracts
- Check whether the public owner requires both a full performance bond and a full labor and material bond. If it does, the ceiling is 5%; if it does not, it can reach 10% [2].
- Release comes in stages rather than on one date. Within 45 business days of substantial completion, the public owner submits a written punch list, then approves and pays the remaining contract balance less two times the value of the items still to be completed [2]. As those items are satisfactorily completed or corrected, it pays for them promptly on receipt of a requisition, less any amount needed to satisfy claims, liens or judgments against the contractor that have not been suitably discharged [2].
- A public owner other than New York City that does not pay within 30 days of receiving a proper requisition, or within 45 days where an elected official must approve, owes interest at the overpayment rate set by the commissioner of taxation and finance [2].
- Down the chain, a contractor that does not pay a subcontractor within 7 calendar days of receiving payment owes interest on that obligation [2].
Both sections are linked under Sources. On a private job the contract and subcontract fix the percentage within the cap; on a public job the bond requirements decide which ceiling applies.
What changed recently
General Business Law § 756-c was amended on November 26, 2023 [1]. General Municipal Law § 106-b was last amended on June 18, 2021 [2].
Related
- Retainage calculator: runs a single pay application from contract sum to net payment.
- Retainage laws by state: New York's rules next to other states'.