Who this applies to
North Carolina treats the two sides very differently. Public work has a detailed retainage statute; private work has only rules for what passes from contractor to subcontractor.
Public construction. G.S. 143-134.1(b1) governs public construction contracts let by the State or any political subdivision [1]. Contracts let by the Department of Transportation under G.S. 136-28.1 are outside it [1].
Private construction. No North Carolina statute caps retainage on private work, so the amount an owner holds is a matter for the contract [2]. Chapter 22C, on payments to subcontractors, supplies the one statutory limit [2]. It does not apply to residential contractors as defined in G.S. 87-10(1a), or to residential improvements of 12 or fewer units [2].
What the rule says
Public retainage depends first on project size. Where total project costs are under $100,000, no retainage is allowed at all [1]. At $100,000 or more, the owner may not retain more than 5% of any periodic payment due a prime contractor [1]. Halfway through the job the withholding stops: once the project is 50% complete, the owner, with the surety's written consent, may not retain anything further from periodic payments while the contractor keeps performing satisfactorily [1]. After that 50% point, the owner may withhold additional retainage so that it holds 2.5% in total through completion [1]. On private jobs the only statutory ceiling sits one level down: a contractor may withhold from a subcontractor a reasonable amount for retainage, not exceeding the initial percentage the owner retained [2].
How to comply
Public projects, owner to prime contractor:
- Check whether total project costs reach $100,000, since below that figure no retainage applies [1].
- Compare each pay application's retainage with the 5% per-payment ceiling [1].
- At 50% completion, check the pay applications that follow against the surety-consent rule and the 2.5% total described above [1].
- Release comes within 60 days after a pay request is submitted and either the owner receives a certificate of substantial completion from the architect, engineer or designer in charge, or the owner receives beneficial occupancy or use of the project, as the contract documents specify [1]. The owner releases it with the surety's written consent, and may keep back no more than 2.5 times the value of the remaining work [1].
- For early finishing trades, retainage drops to 0.5% once that trade's work is 100% complete, with payment within 60 days [1].
Final payment delayed more than 45 days after acceptance, certification of completion, or occupancy and use bears interest from the 46th day at 1% per month or fraction thereof, though a lower agreed rate may apply [1]. Retainage a prime contractor holds from a subcontractor above the owner's percentage also bears 1% per month [1]. On bonded projects, bids may be taken both with and without retainage [1].
Private projects, contractor to subcontractor: When a subcontractor has performed under its contract, the contractor must pay it the full amount received for that subcontractor's work and materials within seven days of receiving each periodic or final payment, and each subcontractor owes the same to its own subcontractors [2]. That seven-day deadline is for paying subcontractors; Chapter 22C sets no date for the owner's release of retainage to the contractor [2]. A payment held more than seven days past receipt bears interest at 1% per month or fraction thereof on the unpaid balance, starting on the eighth day [2].
What changed recently
The public section, G.S. 143-134.1, dates from 1959, c. 1328, and its history lists changes in 1967, 1979, 1983 and 2007-365, s. 1 [1]. Check the current text of the section for any later amendment before relying on the public figures above. Chapter 22C dates from 1987 (Regular Session, 1988), c. 946, and its § 22C-2 was amended in 1991, c. 620 [2].
Related
- Retainage calculator, set to a public project to match a pay application against a per-payment rate.
- Retainage laws by state, for other states' public and private rules.