New Legislation on Retainage for Private Projects Sent to Governor Reeves

By:  Lynn Patton Thompson and Christopher Solop

The Mississippi House and Senate recently passed one of the biggest changes to legislation affecting the private construction industry since the special lien law was passed. Compromise language for SB 2762 was agreed last week, which would set a “cap” of five percent (5%) for retainage on most private, non-residential contracts for construction. From the owner to the prime contractor, and extending down to all subsequent tiers, contracting parties can withhold a maximum of 5% retainage from payment applications; if an amount in excess of 5% retainage is withheld, the excess will be subject to mandatory interest of one percent (1%).

A more complicated measure to set retainage at a maximum rate of 5% but then reduce it to zero (0%) at 50% completion was initially proposed. However, financial institutions providing monies for construction projects could not get comfortable with this and wanted retainage withheld for the duration of projects to encourage performance throughout in accordance with contract requirements. Also, there was opposition to what was perceived as too much interference with private contracting rights. Retainage of ten percent (10%) was traditionally withheld, so legislation of a maximum rate of 5% (unless interest is to be paid for a higher rate of retainage) was a compromise that allows project funds earned to flow faster into the hands of contractors at every tier. The legislation would not affect the rights of contracting parties to enforcement of their contracts.

The Senate agreed to the House version simplifying the issue. SB 2762, as amended, is now headed to Governor Reeves. The Governor is expected to sign it into law. A copy of the measure as sent to Governor Reeves can be found attached. Once signed, the new law would have effect beginning July 1, 2024.