Connecticut retainage law: a plain-English guide for contractors

What is retainage in construction?

Retainage (also called retention) is the part of each progress payment the owner holds back until the work is finished. The general contractor usually passes the same percentage down to its subcontractors, so everyone in the chain has money held back.

"5% retainage" means that on a $200,000 pay application, $10,000 is withheld and $190,000 is paid. Over a long job the held amount adds up: on a $4 million subcontract at 5%, $200,000 is sitting with someone else by the end of the work. On your books it's a retainage receivable. On the GC's or owner's books it's retainage payable.

Retainage exists to give the owner leverage to get the work finished and to protect against unpaid subcontractors and suppliers filing liens. It also means contractors finance part of the project with their own earned money, often for a year or more.

The 5% retainage cap on private Connecticut jobs

On private construction contracts over $25,000, retainage is capped at 5 percent of each progress payment (Conn. Gen. Stat. § 42-158k). The cap was cut from 7.5 percent in 2010. Because the law defines construction contracts to include subcontracts, the cap reaches contractor-to-sub retainage too.

The private rules don't apply to residential buildings of four or fewer units, HUD-funded or HUD-insured projects, or public works (§ 42-158i).

The mandatory retainage escrow account

Connecticut requires escrow on covered private work. Under § 42-158p, "an escrow account shall be established for all retainage," at a state or national bank domiciled in Connecticut or a savings institution located in the state.

• The owner pays the costs. All fees and expenses of maintaining the account are the owner's.
• Monthly statements. The owner must give monthly statements showing the retainage held and changes to the account, and the contractor must share them with subs on request.
• Disclosed up front. Bid solicitations and documents given before the contract is signed must include the form and terms of the escrow account.
• Securities by agreement. An owner may accept securities from a contractor instead, and a contractor from a sub.
• The interest. The statute doesn't require the account to earn interest or say who keeps any it earns. The escrow agreement decides, so read it.

The escrow rule doesn't apply to residential property of four or fewer units, contracts under $25,000, or public buildings and public works (§ 42-158q).

How long can retainage be held in Connecticut?

Type of work: Deadline

Private: All retainage within 30 days after a certificate of final completion or the owner's written acceptance (§ 42-158k)

Public, state projects: Retainage above 5% paid within 90 days after a complete pay application showing 50% completion (§ 49-41b)

On private work, the trigger is final completion, not substantial completion, so the closeout package matters.

Interest and late payment in Connecticut

If an owner fails to deposit or release retainage as required, it owes the contractor an extra 1.5 percent of the amount for each month or part of a month (§ 42-158p(g)). Courts can award costs and attorney's fees to the prevailing party (§ 42-158r).

On progress payments, § 42-158j requires the owner to pay within 30 days of a written payment request, and the contractor to pay subs and suppliers within 25 days of being paid. After written notice by registered or certified mail, late amounts carry 1 percent per month starting 10 days after the notice is received. A contractor can't withhold payment from a sub because of a dispute with someone else.

The money involved is real. $500,000 of retainage held for 18 months earns about $28,500 at 3.7% compounded monthly. Where nothing requires an escrow account, that interest usually stays with whoever holds the money.

Retainage escrow for Connecticut projects

Connecticut requires the escrow account but leaves the interest to the contract. Retain-Edge puts retainage in a segregated escrow account at a partner bank and pays the interest to the GCs and subcontractors who earned it. Retain-Edge never holds, lends or invests the funds, and is now enrolling pilot projects.

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Public projects in Connecticut

Owner: Maximum retainage

State agencies: 7.5%, dropping to 5% at 50% completion

Connecticut DOT: 2.5%

Municipalities: 5%

These limits come from § 49-41b. A general contractor can't withhold a higher percentage from a sub than the public owner withholds from the GC. There's no escrow requirement on public work. GCs pay subs within 30 days of being paid (§ 49-41a).

How to get retainage released faster

1. Read the retainage clause before you sign. Look for the percentage, whether release is by scope or only at final completion, and what documents release requires.
2. Ask for the monthly escrow statements. The owner owes them to the contractor, and the contractor owes them to subs on request.
3. Build the closeout package as you go. Collect warranties, O&M manuals, as-builts and certifications with your monthly pay apps instead of chasing them at the end.
4. Push for the certificate of final completion. The 30-day release clock starts with it or the owner's written acceptance.
5. Ask for scope-level release. If your scope is finished, ask for your retainage to be released when your scope clears, not when the last trade finishes. Many contracts allow it.

Connecticut retainage FAQ

What is the maximum retainage on private jobs in Connecticut?+

5 percent of each progress payment, on contracts over $25,000, excluding residential buildings of four or fewer units and HUD projects (Conn. Gen. Stat. § 42-158k).

Does Connecticut require retainage to be held in escrow?+

Yes on covered private projects. Retainage goes into an escrow account at a Connecticut bank, at the owner's expense, with monthly statements. Public projects, residential of four or fewer units and contracts under $25,000 are exempt.

Who gets the interest on Connecticut retainage escrow?+

The statute doesn't say. The escrow agreement decides, so read it before you sign.

When must retainage be released on a private Connecticut job?+

Within 30 days after a certificate of final completion or the owner's written acceptance.

What happens if a Connecticut owner releases retainage late?+

The owner owes the contractor an extra 1.5 percent per month, or part of a month, and may owe attorney's fees.

How much retainage can a Connecticut town or the state hold?+

Municipalities 5 percent, ConnDOT 2.5 percent, and state agencies 7.5 percent, dropping to 5 percent at 50 percent completion.

How fast must a GC pay subs in Connecticut?+

Within 25 days of being paid on private work, and 30 days on public work. Late amounts carry 1 percent per month after certified-mail notice.

Retainage guides for other states

California5% cap · 2%/mo late penaltyFlorida5% public cap · 2%/mo lateGeorgia5% public cap · 10-day flow-downKentucky10%/5% caps · escrow at $2M+LouisianaEscrow at $50K+ · 10%/5% publicNew York5% cap · void above itNorth Carolina5% public cap · 50% stopOregon5% cap · retainage bondsTennessee5% cap · escrow at $500K+Texas10% reserve · public caps