Update on 3 Percent Withholding Law

To date, 62 national associations, 10 construction trade groups, 229 members of the House of Representatives, the U.S. Chamber of Commerce, the National Electrical Contractors Association (NECA) and the Associated General Contractors of America all have come out against the current 3 percent withholding law.

If you have missed the recent discussion of the proposed law, it requires any government entity with an operational budget of $100 million or more (federal, state or local) to withhold 3 percent from any contractors doing business with that entity. Critics of the law are concerned because the funds are to be held for an undetermined length of time, and there is no guarantee of getting it back.

Three percent may not seem like a big deal. But, as critics say, it is burdensome if you add it to the 10 percent retainage most contractors experience. If not repealed, the worry is that the electrical contracting industry will face difficulties in its ability to bid public contracts. But electrical contractors are not alone.

If everyone has to pay 3 percent for dealing with government work, why not just charge 3 percent more to cover your loss?

“It’s not enough to just raise your prices,” said Bob White, executive director for government affairs at NECA. “When you do … the 3 percent gross plus any other retainage still comes off the total amount, and you still have to find a way to pay your employees and materials suppliers.”

In this scenario, you have to weigh a 3 percent withholding with no system for getting it back versus not winning the bid altogether.

“It puts our contractors in a very tough position,” White said.

With the law on the books, it’s only a matter of time before the 3 percent withholding goes into effect, unless it is re-pealed. Yet, repeal is a strong possibility with four bills in Congress to watch, including the following:

  • H.R. 1023, sponsored by Rep. Kendrick Meek (D-Fla.), would repeal the 3 percent withholding and currently has 229 biparti-san cosponsors.
  • S. 777, sponsored by Sen. Larry Craig (R-Idaho), also would repeal the 3 percent withholding; it currently has 10 Republican cosponsors and no Democrats.
  • H.R. 3056 (already passed by the House) and H.R. 3996 both contain language that would push the effective date from its current 2011 implementation back to 2012.
  • H.R. 1585 would require the Department of Defense to assess the compliance costs of a 3 percent withholding and report back to the Senate and House by April 1, 2008.

“The push for repeal of this law is mounting, as more businesses and more state and local governments find out about it and begin calling for repeal,” White said. EC




Stay Informed Join our Newsletter

Having trouble finding time to sit down with the latest issue of
ELECTRICAL CONTRACTOR? Don't worry, we'll come to you.