Committee advances option allowing bonds in place of private retainage to ease subcontractor cash flow

House sponsors and a string of subcontractors urged the House Business, Fairs and Labor Committee on Wednesday to approve a voluntary option that would allow contractors and subcontractors on private projects to post a surety bond in place of traditional retainage.

"Contractors and subcontractors should be able to access the payments they have earned without unnecessary delays," Majority Leader Duran told the committee as she introduced House Bill 13-11, which applies only to private construction projects. "This bill creates an option, not a mandate, that allows contractors and subcontractors to post a security bond in place of retainage."

The bill would permit contractors who obtain a bond to seek release of the standard 5% retainage from the project owner while the owner remains protected by the bond. Representative Carter, a co-prime sponsor, said the change is aimed at smaller firms and historically disadvantaged contractors who struggle when earned funds are held for months or years.

"It allows these smaller contractors into the market," Carter said, adding that the substitution is voluntary: "If you do not want to use a surety, you don't have to."

Subcontractors described long delays in recovering retainage and the financial strain that creates. Terri Olson, CFO and vice president of OE Construction, told the committee her firm had about $1,000,000 in retention outstanding and that in 2025 they collected $785,274.58 — two examples she offered to show the scale and delay of withheld funds. "It took approximately seven months from when we finished our scope of work to collect that," Olson said.

Small contractors and trade associations said retainage can amount to a contractor's entire net profit on a job and force owners of small firms to borrow to cover payroll. "The average net profit for a contractor is typically about 3%," testified Steve Hathaway, a construction finance instructor. "Retainage is in there, and they take 5%." Vendors and subcontractors who testified estimated retainage-bond premiums at roughly 1–2% of the retained amount, saying the product is underused but available for firms with bonding relationships.

Opposition witnesses — including the Associated General Contractors and a commercial real-estate representative — urged caution. Michael Gifford of AGC said the industry is split and argued the bill does not address how long retainage is held; he and others urged consideration of prompt-pay reforms and warned that developers and bankers have financing concerns. "We disagree on the best solution for contractor cash flow," Gifford said.

Kathy Barsner, representing commercial real-estate interests, said cash retainage provides direct leverage to ensure punch-list work and warranties are honored and warned that compelled substitution could conflict with lender covenants and increase costs. "Cash retainage is one of the few practical tools that reliably ensures contractors...return to fix defects," she said.

Committee members pressed sponsors and witnesses on how the proposal would affect underwriting and whether property owners or general contractors could be forced to accept bonds. Sponsors and many supporting witnesses responded that the option remains voluntary and that owners or GCs could decline to accept a bond in a given contract, though some witnesses warned contractual and practice-based pressures could compel acceptance in some circumstances.

After closing remarks from sponsors emphasizing the bill's voluntary nature and focus on private work, the committee moved the bill to the Committee of the Whole with a favorable recommendation. The clerk reported the motion passed by a committee tally of 11–2.

The Committee of the Whole will next consider the measure; supporters said the change would let subcontractors reclaim earned funds more quickly, while opponents urged the committee to weigh financing, owner and lender protections before final passage.