11.22.2011
Dealing With the New Law Limiting Retention to Five Percent on Public Works Projects

Despite opposition from various public agency groups supporting school and community college districts, Senate Bill 293 was signed into law. The new law limits retention on public works projects to five percent. Codified as Public Contract Code section 7201, the limit on retention applies to all contracts entered into on or after January 1, 2012.

If your school or community college district is in the process or currently out to bid on construction projects that will be awarded after January 1, 2012, you should consider whether retention withholding of five percent is adequate to properly protect your district. Prior to SB 293, the industry standard for retention was ten percent. If you have concerns about withholding only five percent for retention, you should carefully consider exercising the exception in SB 293 to increase the retention percentage. Under the new law, a school or community college district can make a finding that a particular project is “substantially complex” and requires a higher retention amount than five percent. The public agency must make a finding during a properly noticed and normally scheduled board meeting and include the finding and the new retention amount in the bid documents prior to bid.

The difficulty is there is no definition or guidelines on what makes a project “substantially complex.” Some argue that all school and community college projects are “substantially complex” due to DSA requirements and compliance with Title 24. While this position has merit, we believe this interpretation is overbroad and circumvents the intent of the new law. A safer approach is to work with your architect and other consultants to detail specific issues, conditions, requirements, etc. that are unique to your project and make it “substantially complex.” Incorporate these facts into a resolution and include the resolution in the bid documents prior to bid.

Since the New Year is fast approaching and the number of board meetings is limited due to the holidays, we recommend steps now to determine whether your particular project requires a higher retention percentage and make plans to coordinate various relevant dates including, but not limited to, board meetings, bid advertisement, bid opening and contract award dates. If your district requires assistance in preparing an appropriate resolution, please do not hesitate to contact our firm.

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