One of the attendees of the Goldleaf Surety presentation asked a great question about reducing retention under the Nebraska Construction Prompt Pay Act, Nebraska Revised Statutes, 45-1201-45-1211. He wanted to know whether there was any way to reduce and recover retainage during the project. The short answer is retainage should be reduced half way through the project, but there is no right to recover retainge for work performed during the first half of the project.
Retainage in Nebraska
Under section 45-1204 of the Prompt Pay Act, a contractor may withhold up to 10% retainage. A contract that allows for greater retainage is not enforceable.
Once the project is 50% complete, retainage should be reduced to 5%. But, the reduced retainage only applies to additional progress payments. There is nothing in the Prompt Pay Act that requires the upstream contractor to pay retainage withheld since the beginning of the project.
Reasons Not to Reduce Retainage
A reduction in retainage is not automatic. In order to get the reduced retainage, the downstream contractor must demonstrate to the upstream contractor:
- that the work completed to date has been done in accordance with the contract;
- that the downstream contractor has provided assurances of continued performance; and
- the downstream contractor has the financial ability to complete the work.
Take Away: Retainage should be reduced to 5% after the project is 50% complete. But, the upstream contractor may hold on to the entire retainage withheld during the first 50% of the job until the job is complete.