Concerning the use of a bond in lieu of retainage in construction contracts.
Summary
HB26-1311 changes Colorado law governing retainage in private construction contracts. Under current law, owners, contractors, and subcontractors generally may withhold up to 5% of the value of work completed as retainage. The bill creates an alternative: a contractor or subcontractor may tender a retainage bond, and if the bond meets statutory requirements, the receiving party must accept it and release the retained funds covered by the bond.
The bill defines both “retainage bond” and “like bond,” and sets conditions for acceptable bonds. The bond must be issued by a licensed insurer and serve as assurance that the contract or subcontract will be completed satisfactorily and that laborers, suppliers, and subcontractors will be paid amounts owed. The bill also allows the party receiving the bond to require a minimum A.M. Best financial strength rating, capped at no higher than A-. It further provides that the bond and its proceeds are subject to claims and liens in the same manner and priority as existing construction lien law.
Impact
The bill amends Title 38, Article 46 of the Colorado Revised Statutes by adding definitions and revising the retainage rules for private construction contracts. It requires owners, contractors, and subcontractors to accept qualifying retainage bonds in lieu of withholding retainage, while preserving the existing 5% retainage cap where no bond is used. The measure also extends the bond-in-lieu framework down the contracting chain by requiring a contractor to accept a like bond from a subcontractor when the owner has accepted a bond from the contractor. Public entity contracts, including those arising from public-private partnerships, are excluded. The act applies only to contracts created on or after the effective date.
Sentiment
The available context suggests the bill was generally favorable and noncontroversial. It advanced through the House Business Affairs & Labor Committee and Senate Finance Committee and was ultimately signed by the Governor, indicating broad institutional support. The bill’s structure reflects a business-friendly approach aimed at improving cash flow in construction while preserving payment security through surety bonding.
Contention
The main policy tension is between preserving retainage as a protection for owners and contractors versus allowing contractors and subcontractors to free up working capital by substituting a surety bond. Supporters are likely to view the bill as reducing financial strain on construction firms, especially smaller subcontractors, while opponents may be concerned about whether bonds provide the same practical leverage as cash retainage and about the added cost of bond premiums. Another point of potential concern is the mandatory acceptance of qualifying bonds and the requirement that contractors accept like bonds from subcontractors, which shifts risk management and administrative obligations through the contracting chain.