Senate committee advances bill letting private contractors replace cash retainage with surety bonds amid vigorous debate

The Senate Finance Committee moved HB 1311 to the Committee of the Whole after extensive testimony on April 4 about whether subcontractors should be allowed to post a surety bond in lieu of cash retainage on private construction projects.

Sponsors described the bill as a voluntary market option that preserves owner protections while improving cash flow for small and medium contractors. "This bill creates a simple voluntary option," a sponsor said, explaining that a contractor can provide a surety bond equal to retained funds so the contractor can access earned revenue while owners retain claims rights.

Contractors and trade associations gave examples of long delays in paying retainage: a small asphalt contractor said he had one job with $8,200 of retention outstanding for more than 500 days, and another witness said his retainage had been held for more than 1,000 days. Suppliers and contractors argued retainage functions as an interest‑free loan that constrains labor hiring and equipment investment.

Surety underwriters and bond agents testified that retainage bonds are underwritten using standard surety practices, typically costing roughly 1% of the retained amount; underwriters said they perform diligence on contractors and that small, short‑duration bonds are frequently issued without burdensome financial reporting. "At these values, financial statements won't be required," a surety agent said.

Opponents — including commercial real‑estate and developer representatives — warned that sureties, like insurers, have incentives to dispute or delay payouts and that owners could be deprived of prompt remedies. The opposition proposed letters of credit and broader prompt‑payment reforms as preferable alternatives and urged the committee to add that option or refine dispute processes.

Senators discussed possible additions on second reading, including allowing letters of credit and improving prompt‑pay mechanisms for early subcontractors; sponsors said they were open to continued negotiations. After debate the committee voted to send HB 1311 to the Committee of the Whole with a favorable recommendation.