Who this applies to
Texas handles public and private retainage with two statutes that do different jobs. The Government Code limits what a governmental entity may hold back from a contractor. Texas does not cap contractual retainage on private work at all; the Property Code instead makes the owner set money aside for lien claimants.
Public works. Section 2252.032 of the Government Code sets the limits [2]. Its subchapter does not reach contracts under $400,000, contracts executed before Aug. 31, 1981, or TxDOT contracts under chapter 223 of the Transportation Code [2]. Where it applies, subcontractors may not be held to a higher retainage percentage than the prime contractor [2].
Private work. The duty to reserve attaches to an original contract for which a mechanic's lien may be claimed, and it falls on the owner [1]. The rate of retainage in the contract itself is for the parties to set.
What the rule says
On public work, the ceiling depends on the contract's total value:
- Under $5 million: no more than 10% of the contract price [2].
- $5 million or more: no more than 5% of the contract price [2].
- Dam construction or maintenance: 10% [2], whatever the contract is worth.
The same ceiling applies to each line item in the bid schedule or schedule of values, materials and equipment delivered on site included. The tier does not step down as the job progresses. Instead, the contract must state when the project is substantially complete and when the entity may release retainage on portions that are substantially complete or fully completed and accepted.
On private work, while the job is under way and for 30 days [1] after the work under the original contract is completed, the owner must reserve 10% of the contract price of the work, or 10% of the value of the work [1]. The subchapter holding this rule, Subchapter E, is titled "Funds Reserved for Benefit of Lien Claimants."
How to comply
On a public contract:
- Match the contract's total value to its tier, then compare the retainage clause, line items included, with that percentage.
- Once the prime contractor has completed the work the contract requires, the entity may not keep withholding retainage, not even during the warranty period, and for the contracts described in subsection (c) it pays the remaining retainage together with the interest earned on it.
- On the final application, retainage may still be withheld only for a bona fide dispute over noncompliant labor, services or materials, or where the surety will not agree to the release.
- On competitively awarded contracts of $10 million or more [2], and on contracts awarded without competition, the parties may agree to hold retainage in an interest-bearing account; certain water-project entities must deposit retainage above 5% [2] in one.
On a private job, the retainage percentage comes from the contract, and the owner's reserve runs alongside it. A claimant going after the reserved funds must file a lien affidavit on them no later than the 30th day after completion, termination or abandonment (§ 53.103) [1]. Subchapter E carries no interest or penalty; its sanction is lien exposure. An owner who fails to reserve faces a lien on the improvement and the land, in favor of claimants who comply with Subchapter C or E, at least to the extent of the amount that should have been reserved (§ 53.105) [1].
What changed recently
The public tiers come from H.B. 692, which amended § 2252.032 effective June 15, 2021 (Acts 2021, 87th Legislature, Regular Session, chapter 635, section 3) [2]; the section itself was added in 1993 by chapter 268 of the 73rd Legislature [2]. On the private side, H.B. 2237 rewrote Subchapter E, and its section 18 amended § 53.101 effective January 1, 2022 (Acts 2021, chapter 690) [1]. Section 53.101 traces to 1983 (68th Legislature, chapter 576) and was amended in 1989 [1].
Related
- Retainage calculator: run the Texas tiers against your own contract value.
- Retainage laws by state: how Texas's value-based tiers compare with other states' rules.