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Bill Removes Retainage Inequity

By Tymon Berger

Kicking off AGC’s Lobby Day efforts last week I joined Northwest Cascade’s Doug Watt and AGC’s Van Collins to address the Senate Committee on Labor Commerce & Consumer Protection regarding Senate Bill 6421. SB 6421 provides contractors a much needed tool for complying with prevailing wage laws without sacrificing retainage payments. The bill which is sponsored by Sens. Curtis King Mark Schoesler and Janéa Holmquist Newbry recently passed out of the Senate Labor Commerce and Consumer Protection Committee.

Under SB 6421 contractors can submit affidavits of wages paid on behalf of lower-tiered contractors who have ceased operations or have otherwise failed to file the required affidavits. A contractor can file the affidavit on the 31st day following the public project’s acceptance.

Along with Van Collins Doug Watt and I testified in support of the bill sharing our own experiences arising from the collision of prevailing wage laws and retainage fund laws. Together we described to the Committee how the bill met three important goals. First the bill removes the basic inequity of withholding substantial sums in retainage on account of a single contractor going out of business. As it is because lower-tiered subcontractors are often working on several public projects at any given time a single contractor becoming insolvent often has a crippling effect across multiple public jobs.

Second allowing contractors to submit affidavits on behalf of unresponsive lower-tiered contractors allows both higher-tiered contractors and public agencies to closeout projects and release retainage sooner. Out of necessity L&I has allowed higher-tiered contractors to submit affidavits on behalf of lower-tiered contractors—but only if the higher-tier contractor agrees to be held liable for the unresponsive contractor’s unpaid wages for three years after work is performed. SB 6421 would allow contractors to closeout projects and free retainage funds without assuming prevailing wage liability that rightfully belongs to the absentee employer-contractor.

Finally and perhaps most importantly SB 6421 injects liquidity into a construction market where it has all but dried up. Cash is king in construction. And on many public projects today the project’s entire profit is contained in that retained 5% payment. When the retainage is withheld because of a runaway subcontractor the prime must depend on existing capital work-in-progress borrowing and equity dilution to reinvest in its business so it continues to grow and compete. The resulting cash crunch artificially depresses construction revenues substantially increases contractor default risk drives out competition and drives up taxpayers’ bills for public projects.

Washington’s retainage fund laws are out of step with the liquidity demands in today’s construction market. As a fix contractors often turn to retainage bonds essentially paying a premium to improve their cash flow. This should be an indication that Washington’s retainage fund laws are in need of overhaul if not all-out repeal. Meanwhile SB 6421 takes a much needed step in the right direction.

Tymon Berger is an Attorney focusing on construction law for Ashbaugh Beal. He is a member of AGCs Legal Affairs Committee and Future Leadership Forum.

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