HB518 Alabama 2011 Session

Summary

Primary Sponsor

Ron Johnson

Republican

Session

Regular Session 2011

Title

Construction contracts, retainage requirements, defined, Sec. 8-29-3 am'd.

Summary

HB518 defines 'retainage' in Alabama's prompt payment law and sets rules for how much can be withheld, when it must be paid, and penalties for late holdbacks on construction contracts.

What This Bill Does

It defines retainage and applies prompt payment rules to private construction contracts. It sets a maximum retainage of 5-10% of the estimated work and stored materials, and says no further retainage can be withheld after 50% completion. It requires timely payments down the chain: owners to contractors, contractors to subcontractors within seven days of receiving funds, and subcontractors to sub-subcontractors within seven days, with interest at 1% per month for late or excess retainage. It requires the owner to release retainage within 60 days after project completion or substantial completion with occupancy certificates, and notes that electric utility projects are exempt and the rules apply only to contracts entered after the act's effective date.

Who It Affects

• Owners (the payers for construction projects) — their withholding of retainage is limited, they must pay on time, and must release retainage within 60 days after completion, with interest penalties if they withhold more than allowed.
• Contractors, subcontractors, and sub-subcontractors — they must pass through payments promptly to the next tier, adhere to retainage limits across tiers, and may face interest charges for late payments or excess retainage.

Key Provisions

• Defines 'retainage' as money or security withheld by the owner until final completion and acceptance of work.
• Sets retainage limits: not more than 5-10% of the estimated work and stored materials; no further retainage after 50% completion.
• Payment timelines: owner to contractor payments on time (within agreed terms or within 30 days if no terms); contractor to subcontractor payments within seven days of owner payment; subcontractor to sub-subcontractor payments within seven days of contractor payment.
• Interest: 1% per month on any unpaid balance or excess retainage.
• Pass-through requirement: contractors must pay their subcontractors the portion of the owner's payment corresponding to that subcontractor’s interest, including interest for stored materials if applicable.
• Cross-tier retainage rule: the amount of retainage at each tier cannot exceed the retainage at the higher tier; excess retainage incurs 1% monthly interest.
• Release of retainage: owner must release and pay retainage within 60 days after completion or substantial completion with occupancy certificates.
• Exemption for electric utility projects.
• Loans: all loans and loan proceeds are governed by loan documents, and contractors have no lien or rights in such loan proceeds.
• Applicability: provisions apply only to contracts entered after the act’s effective date and do not retroactively change existing contracts.

AI-generated summary using openai/gpt-5-nano on Feb 24, 2026. May contain errors — refer to the official bill text for accuracy.

Subjects

Contracts