Illinois Law Prohibits Excessive Retainage

It is now illegal in Illinois to withhold retainage of more than 10% in relation to any construction contract. Moreover, once the project is more than 50% complete, the retainage is capped by law to not more than 5%. The 10% maximum limit imposed by the new law codifies what has been a standard rate in the construction industry for retainage. What may be a bigger adjustment in the industry is the requirement to reduce retainage to no more than 5% after the contract is half-complete. This change was introduced by the amendment to the Contractor Prompt Payment Act (815 ILCS 603) (the “Act”) recently signed into law by Governor Pritzker. The Act applies to all construction contracts other than those that are publicly funded or related to the construction of single-family or multiple-family residences with 12 or fewer units. In other words, the amendment will affect all private commercial construction projects.

It is important to note that though this amendment took effect immediately upon signing, it only applies to contracts entered into after the Act’s effective date, August 20, 2019. A developer under an agreement, which was effective prior to August 20, 2019, will not be required to reduce retainage in excess of 10% or 5% to meet the relevant limit. Additionally, the amendment applies to agreements between general contractors and subcontractors the same way it does to agreements between developers and general contractors. Therefore, even if a general contractor remains subject to a higher retainage rate fixed by a contract with the developer that existed prior August 20, 2019, it would be illegal for such contractor to pass down the higher rates to its subcontractors retained after August 20, 2019.

Retainage agreements are no longer a matter of industry custom and contractual freedom, but are now regulated by statute. If you have any questions about whether a retainage agreement complies with the new law, or have any questions or other inquiries about construction contracts in general, seek the legal advice of an attorney.

Should you wish to discuss any legal issues related to construction contracts, please contact attorney Steven Migala at (847) 705-7555 or smigala@lavellelaw.com , or attorney Roman Perchyts at (224) 836-6192 or rperchyts@lavellelaw.com.

This article is provided for informational purposes only and does not constitute legal advice. You should not rely on the information contained in this article without first consulting a licensed attorney.