1.1 A bill for an act
1.2 relating to state government; requiring payment transparency in public contracts;
1.3 amending Minnesota Statutes 2024, sections 15.72, subdivision 2, by adding a
1.4 subdivision; 337.10, subdivision 4.
1.5BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.6 Section 1. Minnesota Statutes 2024, section 15.72, subdivision 2, is amended to read:
1.7 Subd. 2.Retainage.(a) A public contracting agency may reserve as retainage from any
1.8progress payment on a public contract for a public improvement an amount not to exceed
1.9five percent of the payment. A public contracting agency may reduce the amount of the
1.10retainage and may eliminate retainage on any monthly contract payment if, in the agency's
1.11opinion, the work is progressing satisfactorily.
1.12 (b) The public contracting agency must release all retainage no later than 60 days after
1.13substantial completion, subject to the terms of this subdivision. If the public contracting
1.14agency reduces the amount of retainage, the contractor must reduce retainage for any
1.15subcontractors at the same rate.
1.16 (c) A contractor on a public contract for a public improvement must pay all remaining
1.17retainage to its subcontractors no later than ten days after receiving payment of retainage
1.18from the public contracting agency, unless there is a dispute about the work under a
1.19subcontract. If there is a dispute about the work under a subcontract, the contractor must
1.20pay out retainage to any subcontractor whose work is not involved in the dispute, and must
1.21provide a written statement detailing the amount and reason for the withholding to the
1.22affected subcontractor.
1Section 1.
REVISOR SGS/EN 25-0207502/07/25
State of Minnesota
This Document can be made available
in alternative formats upon request
HOUSE OF REPRESENTATIVES
H. F. No. 1234
NINETY-FOURTH SESSION
Authored by Scott, Hollins and Mekeland02/20/2025
The bill was read for the first time and referred to the Committee on State Government Finance and Policy 2.1 (d) Upon written request of a subcontractor, the public contracting agency shall notify
2.2the subcontractor of a progress payment, retainage payment, or final payment made to the
2.3contractor.
2.4 (e) After substantial completion, a public contracting agency may withhold no more
2.5than:
2.6 (1) 250 percent of the cost to correct or complete work known at the time of substantial
2.7completion; and
2.8 (2) one percent of the value of the contract or $500, whichever is greater, pending
2.9completion and submission of all final paperwork by the contractor or subcontractor. For
2.10purposes of this subdivision, "final paperwork" means documents required to fulfill
2.11contractual obligations, including, but not limited to, operation manuals, payroll documents
2.12for projects subject to prevailing wage requirements, and the withholding exemption
2.13certificate required by section 270C.66.
2.14If the public contracting agency withholds payment under this paragraph, the public
2.15contracting agency must promptly provide a written statement detailing the amount and
2.16basis of withholding to the contractor. The public contracting agency and contractor must
2.17provide a copy of this statement to any subcontractor that requests it. Any amounts withheld
2.18under clause (1) must be paid within 60 days after completion of the work. Any amounts
2.19withheld under clause (2) must be paid within 60 days after submission of all final paperwork.
2.20 (f) As used in this subdivision, "substantial completion" shall be determined as provided
2.21in section 541.051, subdivision 1, paragraph (a). For construction, reconstruction, or
2.22improvement of streets and highways, including bridges, substantial completion means the
2.23date when construction-related traffic devices and ongoing inspections are no longer required.
2.24 (g) Withholding retainage for warranty work is prohibited. This provision does not waive
2.25any rights for warranty claims.
2.26 (h) For a project funded with federal or state aid, the public contracting agency is not
2.27required to pay that portion of the contract funded by federal or state aid until the federal
2.28or state aid payments have been received.
2.29 (i) Nothing in this section requires payment for a portion of a contract that is not complete
2.30or for which an invoice has not been submitted. A contract, management system, or procedure
2.31that restricts, delays, or prohibits a party from submitting an invoice is contrary to public
2.32policy and is void and unenforceable.
2Section 1.
REVISOR SGS/EN 25-0207502/07/25 3.1 Sec. 2. Minnesota Statutes 2024, section 15.72, is amended by adding a subdivision to
3.2read:
3.3 Subd. 4.Notification to contractors and subcontractors of payment.(a) A public
3.4contracting agency must notify contractors and subcontractors on a public improvement
3.5project of every tier of any progress payment, retainage payment, final payment, or any
3.6other payment made by the public contracting agency.
3.7 (b) The notification must include:
3.8 (1) the amount of the payment;
3.9 (2) the date the payment was made;
3.10 (3) the name and address of the party receiving the payment;
3.11 (4) at least one of the following items:
3.12 (i) an identification of the scope of work the payment relates to;
3.13 (ii) the percentage of overall project completion, the percentage of completion for scope
3.14of work the payment relates to, and a general description of what work the amount paid
3.15relates to; or
3.16 (iii) a copy of a payment application submitted by a contractor or subcontractor that the
3.17payment issued relates to; and
3.18 (5) the reasons for withholding of payment and any retainage terms applied to the
3.19payment.
3.20 (c) The public contracting agency must provide the notification in this subdivision to
3.21contractors and subcontractors of every tier within three business days of making the
3.22payment.
3.23 (d) No cost or fees shall be charged to the contractor or subcontractor for the notice
3.24provided to them.
3.25 Sec. 3. Minnesota Statutes 2024, section 337.10, subdivision 4, is amended to read:
3.26 Subd. 4.Progress payments and retainages.(a) Unless the building and construction
3.27contract provides otherwise, the owner or other persons making payments under the contract
3.28must make progress payments monthly as the work progresses. Payments shall be based
3.29upon estimates of work completed as approved by the owner or the owner's agent. A progress
3.30payment shall not be considered acceptance or approval of any work or waiver of any defects
3.31therein.
3Sec. 3.
REVISOR SGS/EN 25-0207502/07/25 4.1 (b) Retainage on a building and construction contract may not exceed five percent. An
4.2owner or owner's agent may reduce the amount of retainage and may eliminate retainage
4.3on any monthly contract payment if, in the owner's opinion, the work is progressing
4.4satisfactorily. If the owner reduces the amount of retainage, the contractor must reduce
4.5retainage for any subcontractors at the same rate. Nothing in this subdivision is intended to
4.6require that retainage be withheld in any building or construction contract.
4.7 (c) The owner or the owner's agent must release all retainage no later than 60 days after
4.8substantial completion subject to the terms of this subdivision. For purposes of this
4.9subdivision, "substantial completion" shall be determined as provided in section 541.051,
4.10subdivision 1, paragraph (a).
4.11 (d) A contractor must pay all remaining retainage to its subcontractors no later than ten
4.12days after receiving payment of retainage, unless there is a dispute about the work under a
4.13subcontract, in which case the contractor must pay out retainage to any party whose work
4.14is not involved in the dispute. If there is a dispute about the work under a subcontract, the
4.15contractor must pay out retainage to any subcontractor whose work is not involved in the
4.16dispute, and must provide a written statement detailing the amount and reason for the
4.17withholding to the affected subcontractor.
4.18 (e) After substantial completion, an owner or owner's agent may withhold no more than:
4.19 (1) 250 percent of the cost to correct or complete work known at the time of substantial
4.20completion; and
4.21 (2) one percent of the value of the contract or $500, whichever is greater, pending
4.22completion and submission of all final paperwork by the contractor or subcontractor. For
4.23purposes of this subdivision, "final paperwork" means documents required to fulfill
4.24contractual obligations, including, but not limited to, operation manuals, payroll documents
4.25for projects subject to prevailing wage requirements, and the withholding exemption
4.26certificate required by section 270C.66.
4.27If the owner or the owner's agent withholds payment under this paragraph, the owner or the
4.28owner's agent must promptly provide a written statement detailing the amount and basis of
4.29withholding to the contractor. The owner or the owner's agent and the contractor must
4.30provide a copy of this statement to any subcontractor that requests it. Any amounts withheld
4.31under clause (1) must be paid within 60 days after completion of the work. Any amounts
4.32withheld under clause (2) must be paid within 60 days after submission of all final paperwork.
4.33 (f) Withholding retainage for warranty work is prohibited. This provision does not waive
4.34any rights for warranty claims.
4Sec. 3.
REVISOR SGS/EN 25-0207502/07/25 5.1 (g) This subdivision does not apply to a public agency as defined in section 15.71,
5.2subdivision 3.
5.3 (h) This subdivision does not apply to contracts for professional services as defined in
5.4sections 326.02 to 326.15.
5.5 (i) Nothing in this section requires payment for a portion of a contract that is not complete
5.6or for which an invoice has not been submitted. A contract, management system, or procedure
5.7that restricts, delays, or prohibits a party from submitting an invoice is contrary to public
5.8policy and is void and unenforceable.
5Sec. 3.
REVISOR SGS/EN 25-0207502/07/25