Illinois’ New Retainage Law

November 1, 2019

New amendments to the Illinois Contractor Prompt Payment Act (“Act”) were recently passed into law. This new portion of the law specifically concerns the percentage of funds an owner is entitled by contract to withhold from payments to the contractor (or which the contractor can withhold from the subcontractor) until the owner’s obligation to pay the contractor triggers.

Effective August 20, 2019, Illinois law provides that a maximum of ten percent retainage may be withheld from payments under private construction contracts and, after the contract is one-half complete, retainage must be reduced to 5% and kept at 5% for the remainder of the contract. The new law applies to all contracts effective after August 20, 2019 which are for the design, construction, alteration, or improvement of real property. The law specifically excludes public contracts (where public funds are used, i.e., tax dollars) and contracts involving the design, construction, alteration, or improvement of residential property with 12 or fewer dwellings in a single building.

The requirement to reduce retainage to 5% once the project reaches its midpoint and thereafter to withhold no more than 5% from subsequent payments will result in an infusion of funds to the contractor and a reduction of an owner’s security from what has been traditionally withheld on construction projects in Illinois.

Owners, lenders, title companies, contractors, subcontractors, sureties, and other participants in the industry all will need to grapple with the new law and reach accommodations in the process.

For more information on how the Illinois Contractor Prompt Payment Act may affect your business and for best practice procedures contact the attorneys at Rock Fusco & Connelly, LLC.