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March 2020

Illinois Among the Majority of States in Adopting Pro-Contractor Retainage Caps

On August 20, 2019, Governor J.B. Pritzker signed SB 1636 into law amending the Illinois Contractor Prompt Payment Act, 815 ILCS 603/1, et seq. (“The Act”). The Amendment added additional protections for contractors, codifying retainage caps as it relates to private construction projects. Illinois has now joined the vast majority of states who have enacted similar retainage cap laws.

The Act, first enacted in 2007, was amended to provide the following as it relates to retainage:

Retainage. No construction contract may permit the withholding of retainage from any payment in excess of the amounts permitted in this Section. A construction contract may provide for the withholding of retainage of up to 10% of any payment made prior to the completion of 50% of the contract. When a contract is 50% complete, retainage withheld shall be reduced so that no more than 5% is held. After the contract is 50% complete, no more than 5% of the amount of any subsequent payments made under the contract may be held as retainage. 815 ILCS 603/20.

This amendment to the Act applies to any contracts or subcontracts for the design, construction, alteration, improvement, or repair of any real property in Illinois entered into on or after August 20, 2019.

This amendment does not apply to publicly-funded projects, or to contracts for the design, construction, alternation, improvement, or repair of single-family residences or multiple family residences with 12 or fewer units in a single building.

The Amendment generally favors contractors, and in particular underfunded or smaller contactors who were previously unable to bid competitively due to the potentially high retainage. With caps on retainage, theoretically those contractors can now be more competitive. Owners and developers would argue, however, that the Amendment severely restricts private parties’ ability to negotiate their own contracts. And, in particular, limits owners’ and developers’ ability to use the retainage to help ensure projects are completed properly and timely.

As a result of the Amendment, contractor contracts should now contain language consistent with its requirements on retainage. Since enactment of the Act, Illinois appellate courts have yet to address whether the retainage provision may be waived through language in the contract.


Erich P. Nathe