H.B. 365 Enrolled

UNENFORCEABLE AGREEMENTS - LIMITS
ON RETENTION PROCEEDS
2000 GENERAL SESSION
STATE OF UTAH
Sponsor: Susan J. Koehn
AN ACT RELATING TO COMMERCE AND TRADE; AMENDING CERTAIN
CONSTRUCTION CONTRACT RETENTION PROVISIONS RELATED TO
CONSTRUCTION LENDERS.
This act affects sections of Utah Code Annotated 1953 as follows:
AMENDS:
13-8-5, as enacted by Chapter 365, Laws of Utah 1999
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 13-8-5 is amended to read:
13-8-5. Definitions -- Limitation on retention proceeds withheld -- Deposit in
interest-bearing escrow account -- Release of proceeds -- Payment to subcontractors --
Penalty -- No waiver.
(1) As used in this section:
(a) (i) "Construction contract" means a written agreement between the parties relative to
the design, construction, alteration, repair, or maintenance of a building, structure, highway,
appurtenance, appliance, or other improvements to real property, including moving, demolition, and
excavating for nonresidential commercial or industrial construction projects.
(ii) If the construction contract is for construction of a project that is part residential and
part non-residential, this section applies only to that portion of the construction project that is
non-residential as determined pro-rata based on the percentage of the total square footage of the
project that is nonresidential.
(b) "Contractor" means a person who, for compensation other than wages as an employee,
undertakes any work in a construction trade, as defined in Section 58-55-102 and includes:
(i) any person engaged as a maintenance person who regularly engages in activities set forth
in Section 58-55-102 as a construction trade; or

(ii) a construction manager who performs management and counseling services on a
construction project for a fee.
(c) "Construction lender" means any person, including a bank, trust company, savings bank,
industrial bank, land bank, safe deposit company, private banker, savings and loan association, credit
union, cooperative bank, small loan company, sales finance company, investment company, or any
other financial institution that advances monies to a borrower for the purpose of making alterations
or improvements to real property. A construction lender does not include a person or entity who is
acting in the capacity of contractor, original contractor, or subcontractor.
[(c)] (d) "Original contractor" is as provided in Section 38-1-2 .
[(d)] (e) "Owner" means the person who holds any legal or equitable title or interest in
property. Owner does not include a construction lender unless the construction lender has an
ownership interest in the property other than solely as a construction lender.
[(e)] (f) "Public agency" means any state agency or political subdivision of the state that
enters into a construction contract for an improvement of public property.
[(f)] (g) "Retention payment" means release of retention proceeds as defined in Subsection
(1)(g).
[(g)] (h) "Retention proceeds" means monies earned by a contractor or subcontractor but
retained by the owner or public agency pursuant to the terms of a construction contract to guarantee
payment or performance by the contractor or subcontractor of the construction contract.
[(h)] (i) "Subcontractor" is as defined in Section 38-1-2 .
[(i)] (j) "Successful party" has the same meaning as it does under Section 38-1-18 .
(2) (a) This section is applicable to all construction contracts relating to construction work
or improvements entered into on or after July 1, 1999, between:
[(a)] (i) an owner or public agency and an original contractor;
[(b)] (ii) an original contractor and a subcontractor; and
[(c)] (iii) subcontractors under a contract described in Subsection (2)(a) or (b).
(b) This section does not apply to a construction lender.
(3) (a) Notwithstanding Section 58-55-603 , the retention proceeds withheld and retained

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from any payment due under the terms of the construction contract may not exceed 5% of the
payment:
(i) by the owner or public agency to the original contractor;
(ii) by the original contractor to any subcontractor; or
(iii) by a subcontractor.
(b) The total retention proceeds withheld may not exceed 5% of the total construction price.
(c) The percentage of the retention proceeds withheld and retained pursuant to a construction
contract between the original contractor and a subcontractor or between subcontractors shall be the
same retention percentage as between the owner and the original contractor if:
(i) the retention percentage in the original construction contract between an owner and the
original contractor is less than 5%; or
(ii) after the original construction contract is executed but before completion of the
construction contract the retention percentage is reduced to less than 5%.
(4) (a) If any payment on a contract with a private contractor, firm, or corporation to do work
for an owner or public agency is retained or withheld by the owner or the public agency, as retention
proceeds, it shall be placed in an interest-bearing account.
(b) The interest accrued under Subsection (4)(a) shall be:
(i) for the benefit of the contractor and subcontractors; and
(ii) paid after the project is completed and accepted by the owner or the public agency.
(c) The contractor shall ensure that any interest accrued on the retainage is distributed by the
contractor to subcontractors on a pro rata basis.
(5) Any retention proceeds retained or withheld pursuant to this section and any accrued
interest shall be released pursuant to a billing statement from the contractor within 45 days from the
later of:
(a) the date the owner or public agency receives the billing statement from the contractor;
(b) the date that a certificate of occupancy or final acceptance notice is issued to:
(i) the original contractor who obtained the building permit from the building inspector or
public agency;

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(ii) the owner or architect; or
(iii) the public agency;
(c) the date that a public agency or building inspector having authority to issue its own
certificate of occupancy does not issue the certificate but permits partial or complete occupancy of
a newly constructed or remodeled building; or
(d) the date the contractor accepts the final pay quantities.
(6) If only partial occupancy of a building is permitted, any retention proceeds withheld and
retained pursuant to this section and any accrued interest shall be partially released within 45 days
under the same conditions as provided in Subsection (5) in direct proportion to the value of the part
of the building occupied.
(7) The billing statement from the contractor as provided in Subsection (5)(a) shall include
documentation of lien releases or waivers.
(8) (a) Notwithstanding Subsection (3):
(i) if a contractor or subcontractor is in default or breach of the terms and conditions of the
construction contract documents, plans, or specifications governing construction of the project, the
owner or public agency may withhold from payment for as long as reasonably necessary an amount
necessary to cure the breach or default of the contractor or subcontractor; or
(ii) if a project or a portion of the project has been substantially completed, the owner or
public agency may retain until completion up to twice the fair market value of the work of the original
contractor or of any subcontractor that has not been completed:
(A) in accordance with the construction contract documents, plans, and specifications; or
(B) in the absence of plans and specifications, to generally accepted craft standards.
(b) An owner or public agency that refuses payment under Subsection (8)(a) shall describe
in writing within 45 days of withholding such amounts what portion of the work was not completed
according to the standards specified in Subsection (8)(a).
(9) (a) Except as provided in Subsection (9)(b), an original contractor or subcontractor who
receives retention proceeds shall pay each of its subcontractors from whom retention has been
withheld each subcontractor's share of the retention received within ten days from the day that all or

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any portion of the retention proceeds is received:
(i) by the original contractor from the owner or public agency; or
(ii) by the subcontractor from:
(A) the original contractor; or
(B) a subcontractor.
(b) Notwithstanding Subsection (9)(a), if a retention payment received by the original
contractor is specifically designated for a particular subcontractor, payment of the retention shall be
made to the designated subcontractor.
(10) (a) In any action for the collection of the retained proceeds withheld and retained in
violation of this section, the successful party is entitled to:
(i) attorney's fees; and
(ii) other allowable costs.
(b) (i) Any owner, public agency, original contractor, or subcontractor who knowingly and
wrongfully withholds a retention shall be subject to a charge of 2% per month on the improperly
withheld amount, in addition to any interest otherwise due.
(ii) The charge described in Subsection (10)(b)(i) shall be paid to the contractor or
subcontractor from whom the retention proceeds have been wrongfully withheld.
(11) [It is against public policy for any] A party to a construction contract may not require
any other party to waive any provision of this section.

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