Agenda - Council - 11/12/2019 - Laserfiche WebLink

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Public Works Committee Meeting Date: 10/15/2019 By: Bruce Westby, Engineering/Public Works Title: Staff Update on New Retainage Requirements for City Construction Contracts Purpose/Background: The following italicized text was copied from the League of Minnesota Cities website. 6.2. A new retainage law was enacted as part of the omnibus jobs, economic development, energy, and commerce finance bill (First Special Session Chapter 7) in article 9, sections I and 13. There were substantial changes this year, so cities should work with their city attorneys when entering into new contracts for public construction projects. The new requirements, found in Minnesota Statutes, section 15.72, subdivision 2, and Minnesota Statutes, section 337.10, subdivision 4, are effective Aug. 1, and apply to agreements entered into on or after this date. What retainage is Retainage is a common practice in the private and public sectors, where a portion of the agreed -upon contract price is withheld until the construction work is complete to assure that the general contractor or subcontractor has satisfied their obligations. Before the new law, 5% of the construction contract could be held for retainage from the general contractor. The general contractor, in turn, also was permitted to withhold 5% from its subcontractors. Release of retainage One of the most significant changes is when retainage must be released. Retainage must now be released no later than 60 days after "substantial completion" ofa construction project, with some limited exceptions. "Substantial completion" is defined consistently in Minnesota Statutes, section 541.051, subdivision I (a). It is the date when construction is sufficiently completed so that the owner can occupy or use the improvement for the intended purpose. For streets, highways, and bridges, "substantial completion" is defined as the date when construction -related traffic devices and ongoing inspections are no longer required. The general contractor mustpay retainage to its subcontractors within 10 days after receiving retainage payment, unless there is a dispute about the work. The contractor must pay retainage to any subcontractor whose work is not involved in the dispute and must provide a written statement detailing the amount and reason for the withholding to the affected subcontractor. Allowable withholding After substantial completion, a city may still withhold (1) 250% of the cost to correct or complete work known at the time of substantial completion, and (2) the greater of $500 or I percent of the value of the contract for "final paperwork. " Final paperwork is defined as documents required to fulfill contractual obligations including, but not limited to, operation manuals, payroll documents for projects subject to prevailing wage requirements, and the withholding exemption certificate required by Minnesota Statutes, section 270C. 66 (IC 134 form).