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Committee hears bill capping retainage at 5% to ease cash flow for contractors
Summary
House staff and trade witnesses told lawmakers HB 389 would cap retainage at 5% of progress payments, require interest-bearing escrow accounts, and add penalties for late payments; DOT asked for clearer language distinguishing retainage from withholding.
Keith Bruce, staff for Cochair Hall, outlined House Bill 389 as a response to retainage practices that can withhold large amounts of progress payments from contractors and subcontractors. The bill would cap retainage at no more than 5% of progress payments, require retainage to be held in an interest-bearing escrow account, add a 2% penalty and interest for late retainage payments, and make attorney-fee awards available to recover withheld funds.
Jesse Hale, an owner of Alcan Electrical and Governor of the National Electrical Contractors Association (NECA) Alaska Chapter, testified in favor of the bill, saying current practices can put smaller contractors under severe financial strain: "Being that she wants to keep her crew working ... she accepts those terms," Hale said in a scenario describing a small contractor forced to accept 10% retainage. Hale added that standardization at 5% improves predictability and planning for smaller firms.
Committee members pressed on practical effects. Representative Carrick asked whether the bill meaningfully shortens the time subcontractors wait for retention to be released; Hale said the bill clarifies that a completed trade should be paid even if the larger contract remains open (for example, electrical work paid even when landscaping is unfinished). Representative Sadler asked the difference between withholding (payment withheld for deficient work) and retainage (a recurring percentage withheld from each progress payment); Hale and Bruce provided those distinctions.
Andy Mills, legislative liaison for the Alaska Department of Transportation and Public Facilities, said DOT's fiscal note was intended to avoid conflating retainage with withholding and that DOT generally does not use retainage in the same manner outlined in HB 389. Mills asked for clearer statutory language so DOT's specifications and procurement practices are not unintentionally constrained.
The committee concluded questions and set the bill aside for further consideration; no vote was taken.
