Miscellaneous Expenditures — Payments and Fees
Retainage

Public works contract requirements

A governmental entity shall:

• Include in each public works contract a provision that establishes the circumstances under which:
  • The public works project that is the subject of the contract is considered substantially complete.
  • The governmental entity may release all or a portion of the retainage for substantially completed portions of the project or fully completed and accepted portions of the project.
• Maintain an accurate record of accounting for:
  • The retainage withheld on periodic contract payments.
  • The retainage released to the prime contractor for a public works contract.
  • For a public works contract described by Texas Government Code Section 2252.032, pay any remaining retainage and the interest earned on the retainage to the prime contractor on completion of the work required to be performed under the contract.

Accrual and payment of interest on retainage

If the total value of a public works contract is less than $5 million, a governmental entity may not withhold retainage in an amount that exceeds 10 percent of the contract price and the rate of retainage may not exceed 10 percent for any item in a bid schedule or schedule of values for the project, including materials and equipment delivered on-site for installation.

If the total value of a public works contract is $5 million or more, a governmental entity may not withhold retainage in an amount that exceeds five percent of the contract price and the rate of retainage may not exceed five percent for any item in a bid schedule or schedule of values of the project, including materials and equipment delivered on-site for installation.

If a public works contract relates to the construction or maintenance of a dam, regardless of the total value of the contract, a governmental entity may not withhold retainage in an amount that exceeds 10 percent of the contract price and the rate of retainage may not exceed 10 percent for any item in a bid schedule or schedule of values for the project, including materials and equipment delivered on-site for installation.

The above requirements do not apply to a governmental entity described under Texas Government Code Section 2252.032(i). A governmental entity described in this subsection shall deposit in an interest-bearing account the retainage withheld under a public works contract that provides for retainage exceeding five percent of the periodic contract payments.

For a competitively awarded contract with a value of $10 million or more and for a contract that was awarded using a method other than competitive bidding, a governmental entity and prime contractor may agree to deposit in an interest-bearing account the retainage withheld on periodic contract payments.

A governmental entity may not withhold retainage after completion of the work required to be performed under the contract by the prime contractor (including during the warranty period) or for the purpose of requiring the prime contractor, after completion of the work required to be performed under the contract, to perform work on manufactured goods or systems that were:

• Specified by the designer of record.
• Properly installed by the contractor.

Disputes

A governmental entity may withhold payment of retainage if:

• There is a bona fide dispute between the governmental entity and the prime contractor, and the reason for the dispute is that labor, services or materials provided by the prime contractor or by a person under the direction or control of the prime contractor, failed to comply with the express terms of the contract.
• The surety on any outstanding surety bond executed for the contract does not agree to the release of retainage.

The governmental entity must provide to the prime contractor written notice of the basis on which retainage is being withheld under this section. If there is no bona fide dispute between the governmental agency and the prime contractor and neither party is in default under the contract, the prime contractor is entitled to:

• Cure any noncompliant labor, services, or materials.
• Offer the governmental entity a reasonable amount of money as compensation for any noncompliant labor, services or materials that cannot be promptly cured.

A governmental entity is not required to accept a prime contractor’s offer of compensation under this section. This section may not be construed to limit either the governmental entity’s or prime contractor’s right to pursue any remedy available under the express terms of the public works contract or other applicable law. This section may not be construed as affecting a governmental entity’s ability to retain certain amounts due under a contract as required by Texas Government Code Chapter 2258.

Subcontractors

If, for the purpose of fulfilling an obligation of a prime contractor under a public works contract, the prime contractor enters into a subcontract:

• The prime contractor may not withhold from a subcontractor a greater percentage of retainage than the percentage that may be withheld from the prime contractor by the governmental entity under the contract.
• A subcontractor who enters into a contract with another subcontractor to provide labor or materials under the contract may not withhold from that subcontractor a greater percentage of retainage than the percentage that may be withheld from the subcontractor under the requirement above.

Exceptions

Any requirements described above do not apply to a public works contract:

• With a total contract price, estimated at the time of contract execution, of less than $400,000.
• Made by the Texas Department of Transportation under Texas Transportation Code Chapter 223.

Definitions:

Dam

Any barrier, including any appurtenant structures, that is constructed for the purpose of permanently or temporarily impounding water.

Governmental entity

The state; a department, board or agency of the state; or any other governmental or quasi-governmental authority authorized by statute to make a public works contract.

Person

Includes an individual, a corporation, an organization, a government or governmental subdivision or agency, a business trust, an estate, a trust, a partnership, an association and any other legal entity.

Prime contractor

A person or persons, firm or corporation that contracts with a governmental entity for the construction, alteration or repair of a public building, or for the construction or completion of any public work.

Public works

Includes the construction, alteration or repair of a public building, or the construction or completion of a public work.

Public works contract payment

A payment by a governmental entity for the value of labor, material, machinery, fixtures, tools, power, water, fuel or lubricants used or consumed, ordered and delivered for use or consumption, or specially fabricated for use or consumption but not yet delivered, in the direct performance of a public works contract.

Retainage

The percentage of a public works contract payment withheld by a governmental entity to secure performance of the contract.

Warranty Period

The period of time specified in a contract during which certain terms applicable to the warranting of work performed under the contract are in effect.

Sources [+]

Appropriation year determination

The appropriation year that must be charged when paying retainage is the year charged for the progress payment out of which the retainage was withheld. This does not apply to a state agency’s payment of retainage out of funds not appropriated by the General Appropriations Act.

Documentation Requirements [+]