(1) To assure proper performance of a construction contract by the contractor, a public agency may retain a portion of each progress payment otherwise due as provided in this section.
  (2) The retainage shall be limited to the following:

Terms Used In Michigan Laws 125.1563

  • Contract: A legal written agreement that becomes binding when signed.
  • contract: means a written agreement between a contractor and a public agency for the construction, alteration, demolition, or repair of a facility, other than a contract having a dollar value of less than $30,000. See Michigan Laws 125.1561
  • Contractor: means an individual, sole proprietorship, partnership, corporation, or joint venture, that is a party to a construction contract with a public agency. See Michigan Laws 125.1561
  • Progress payment: means a payment by a public agency to a contractor for work in place under the terms of a construction contract. See Michigan Laws 125.1561
  • Public agency: means this state, or a county, city, township, village, assessment district, or other political subdivision, corporation, commission, agency, or authority created by law. See Michigan Laws 125.1561
  • retained funds: means the amount withheld from a progress payment to a contractor pursuant to section 3. See Michigan Laws 125.1561
  • state: when applied to the different parts of the United States, shall be construed to extend to and include the District of Columbia and the several territories belonging to the United States; and the words "United States" shall be construed to include the district and territories. See Michigan Laws 8.3o
  (a) Not more than 10% of the dollar value of all work in place until work is 50% in place.
  (b) After the work is 50% in place, additional retainage shall not be withheld unless the public agency determines that the contractor is not making satisfactory progress, or for other specific cause relating to the contractor’s performance under the contract. If the public agency so determines, the public agency may retain not more than 10% of the dollar value of work more than 50% in place.
  (3) The retained funds shall not exceed the pro rata share of the public agency’s matching requirement under the construction contract and shall not be commingled with other funds of the public agency and shall be deposited in an interest bearing account in a regulated financial institution in this state wherein all such retained funds are kept by the public agency which shall account for both retainage and interest on each construction contract separately. A public agency is not required to deposit retained funds in an interest bearing account if the retained funds are to be provided under a state or federal grant and the retained funds have not been paid to the public agency.
  (4) Except as provided in section 4(7) and (8), retainage and interest earned on retainage shall be released to a contractor together with the final progress payment.
  (5) At any time after 94% of work under the contract is in place and at the request of the original contractor, the public agency shall release the retainage plus interest to the original contractor only if the original contractor provides to the public agency an irrevocable letter of credit in the amount of the retainage plus interest, issued by a bank authorized to do business in this state, containing terms mutually acceptable to the contractor and the public agency.
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