Illinois Joins States to Cap Retainage Payments

With the passage of Illinois SB1636in late August, almost half of the states in the nation now have laws in place to cap private contract retainage from payments by general contractors or building owners to subcontractors, meaning that subcontractors, including electrical contractors, are in line to receive bigger paychecks earlier in their project timelines.

The new Illinois law restricts retainage based on contract completion. For payments made prior to the completion of 50% of the contract, retainage is limited to up to 10%. Once a project is 50% complete, the retainage reduces: No more than 5% overall and up to 5% of progress payments may be withheld. 

In many cases, general contractors and building owners already realize the benefits associated with not trying to hold more retainage than is absolutely necessary, since it helps them build long-term and productive relationships with reliable subcontractors with which they want to continue to work. That is, good subcontractors tend to want to gravitate toward general contractors and building owners that don't attempt to withhold excess retainage in the first place, especially during these "boom" times, when subcontractors can often pick and choose the projects on which they want to work.

With the introduction of this new law and similar laws in other states, subcontractors may be able to take on work that they previously would not have been able to perform because of a weak cashflow. 

However, the Illinois law in specific applies to all construction contractors, including those between subcontractors and lower-tier contractors, meaning that electrical contractors who hire other subcontractors would also be required to follow the new retainage limit law.

Still, some general contractors and building owners are not necessarily in favor of such legislation, noting that they are already working on tight margins, so paying out more money to subcontractors sooner could make margins even tighter.

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