By Shelia Watson
Contributing Writer

In June 2005, Gov. Mark Sanford signed into law an amendment to the South Carolina statute that governs the amount of retainage that can be withheld on state contracting projects.

Retainage is a percentage of a contract price retained from a contractor as assurance that subcontractors will be paid and that the job will be completed.

The amendment reduced the amount the state can withhold from general contractors and the amount general contractors can withhold from subcontractors from 5% to 3.5%.

The statute was effective immediately upon the governor’s signing.

The specific text of the change noted that Section 11-35-3030 of the South Carolina laws, which relates to bond and security for construction contract performance and payment pursuant to the state consolidated procurement code, reduces the maximum retention amount for each installment pending completion of the project.

Pat Flynn, an attorney who specializes in construction law, said the amendment applies only to that statute and, therefore, applies only to state projects.

“It appears that this reduction can be applied immediately to all state contracts, even those contracts and subcontracts that were signed before this statute was enacted,” Flynn wrote in a letter to his clients. “That certainly seems to be the intent of the Legislature, and the language of the statute doesn’t say anything to the contrary.”

Chuck McDonald, a partner with Robinson McFadden law firm in Columbia and a lobbyist for the Specialty Trades Association Council, helped lobby the retainage reform bill through the Legislature.

“The reduction in retainage is still new to contractors, architects and owners,” McDonald said. “However, most of the players in state construction are now aware of the reduction in retainage and understand that for all projects commenced on or after June 1, 2005, the maximum amount of retainage that can be withheld is 3.5 percent.”

Other than caution over the applicability of ongoing projects, many contractors are pleased with the change.

“It benefits subcontractors in that money is not being held up for payment,” said Linda Burkett, executive director of the American Subcontractors Association of the Carolinas. “Someone could have finished a job for years and have the retainage held for a long period of time. That puts a financial burden on the subcontractor. And for the small subcontracting companies, it’s a huge financial burden. In some cases, larger companies feel the pinch just as much, but the small companies definitely were being hit hard by retainage.”

General contractors were not affected as much as subcontractors when retainages were higher, Burkett said.

“The way it worked for years is that general contractors would use retainage as a carrot to get subcontractors back on the job,” she said. “They held out that last bit of money in case something went wrong and they had to call back the subcontractor to repair the work. But in my opinion, if general contractors would work with reputable subcontractors in the first place, they wouldn’t have to worry about that.”

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