RW&G

New Law Limits Public Works Contract Retention to 5 Percent as of January 1, 2012

October 2011

A new section of the Public Contract Code will reduce the amount California public entities retain from public works contract payments from 10% to 5%, in most cases.

Senate Bill 293 will become effective January 1, 2012 and, among other things, adds Section 7201 to the Public Contract Code. With respect to local agencies, including general law and charter cities, Section 7201(b) provides, in part, that "retention proceeds withheld from any payment by a public entity from the original contractor... shall not exceed 5 percent of the payment." This subsection further provides that "[I]n no event shall the total retention proceeds withheld exceed 5 percent of the contract price." However, Section 7201(b)(4) provides, in part, that an awarding agency may withhold in excess of five percent (5%) "on specific projects where the governing body of the public entity or designee, including, but not limited to, a general manager or other director of an appropriate department, has approved a finding during a properly noticed and normally scheduled public hearing and prior to bid that the project is substantially complex and therefore requires a higher retention amount than 5 percent and the awarding entity includes both this finding and the actual retention amount in the bid documents."

Finally, by its terms, Section 7201 is effective only until January 1, 2016, unless subsequent legislation deletes or extends that date.

Senate Bill 293 will likely necessitate revision of agencies' standard bid documents and public works contracts to reflect the reduced retention limit. Of course, where the public works project is found to be "substantially complex," a higher retention is authorized, provided the required findings are made and included along with the actual retention amount, in the bid documents.

For advice from RW&G concerning the effects of Senate Bill 293, or any other public works issues, please contact: Michael Estrada at mestrada@rwglaw.com, D. Craig Fox at dfox@rwglaw.com, Steven L. Dorsey at sdorsey@rwglaw.com, or any of the lawyers in the firm's Public Works Practice Group.


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