House Bill 1166, introduced in Maryland on February 6, 2025, aims to reform the retainage practices in public contracting, a move that could significantly impact contractors and subcontractors across the state. The bill addresses concerns about the withholding of payments in construction contracts, which has been a contentious issue for many in the industry.

The primary purpose of House Bill 1166 is to regulate how retainage—funds withheld from contractors to ensure project completion—can be managed by primary procurement units and the Maryland Transportation Authority. Under the proposed legislation, these entities would have the authority to withhold payments they deem necessary to protect the state's interests. However, the bill also stipulates that contractors cannot retain a higher percentage of payments from their subcontractors than what is withheld from them by the state. This provision aims to create a fairer payment structure throughout the contracting chain.

One of the key provisions of the bill is that undisputed retainage must be paid within 90 days after the substantial completion of a project. This change is expected to improve cash flow for contractors and subcontractors, who often face delays in receiving payments. Additionally, if retainage is placed in an escrow account, the bill mandates that each payment of retainage includes a pro-rata share of any interest earned, further benefiting those involved in the contracts.

The bill has sparked discussions among industry stakeholders, with some expressing concerns about the potential for increased administrative burdens and the need for clarity in defining "substantial completion." Supporters argue that the bill will enhance financial stability for smaller contractors and subcontractors, who are often disproportionately affected by retainage practices.

As House Bill 1166 moves through the legislative process, its implications could resonate beyond the construction industry. By ensuring timely payments and fair practices, the bill may foster a more equitable business environment, potentially leading to increased participation from smaller firms in public contracts. The bill is set to take effect on October 1, 2025, and its passage could mark a significant shift in how public contracting is conducted in Maryland, ultimately benefiting the local economy and community development.