State Finance and Procurement - Retention Proceeds
Summary
HB954 amends Maryland’s State Finance and Procurement law governing retainage on State construction contracts. The bill requires that undisputed retention proceeds held by a State unit or contractor be paid within 90 days after the date of substantial completion, as defined by the applicable contract or subcontract. It also preserves existing rules limiting retainage to 5% when a contractor has furnished full payment and performance security, and it continues to allow additional withholding when there are reasonable grounds related to performance issues.
The bill also clarifies the flow of retainage through the contracting chain. A contractor may not retain from a subcontractor a higher percentage than the State retains from the contractor, and the same rule applies from subcontractors to lower-tier subcontractors, subject to exceptions for performance-based withholding. If retainage is placed in an interest-bearing escrow account, each payment must include a pro rata share of earned interest. The measure takes effect October 1, 2026.
Impact
HB954 changes Section 13-225 of the State Finance and Procurement Article by adding a mandatory payment deadline for undisputed retainage and by requiring pro rata distribution of interest when retainage is escrowed. Its practical effect is to speed payment on public construction projects, improve cash flow for contractors and subcontractors, and reduce the time funds can be held after substantial completion. It does not eliminate retainage or broader security-based withholding authority, but it narrows how long undisputed amounts may remain unpaid under State procurement contracts.
Sentiment
The bill appears to have been broadly supported. It received a favorable committee report, was adopted by the House, and passed third reading with 128 yeas and 0 nays. The unanimous vote suggests little visible opposition in the recorded legislative history, and the measure was treated as a technical procurement/payment reform rather than a controversial policy change.
Contention
No committee testimony or recorded debate is provided, and the voting record shows no opposition on final passage. Based on the text, any potential concerns would likely center on whether the 90-day deadline could affect State agencies’ leverage in resolving disputes or managing contractor performance, but the bill preserves the ability to withhold additional amounts for reasonable performance-related grounds. The main policy balance is between protecting public owners’ interests and ensuring timely payment to contractors and subcontractors.