Minnesota Rewrites Construction Rules for Prompt Payment and Retainage

Minnesota has modified its prompt payment and retainage statute (Minn. Stat. 337.10). These revisions mean that many owners, contractors and subcontractors will have to revise the payment provisions of their construction contracts to conform.

The statute has been revised in three important ways:

1. Retainage on building and construction contracts is limited to no more than 5 percent. This section previously allowed parties to contract around this statutory limitation, but that is no longer the case. Retainage may not exceed 5 percent. Any provision stating otherwise is unenforceable.
2. Prime contractors and subcontractors must pay their subcontractors and materials suppliers within 10 days of receipt of retainage by the party responsible for paying the retainage.
3. The statute now allows contractors and subcontractors to suspend work if they have not been paid undisputed amounts within 10 days. This is a new statutory rule that may be used by contractors and subcontractors if they are not paid undisputed amounts.

The law goes into effect on August 1, 2016, and applies to all contracts entered into on or after August 1, 2016. The law does not alter contracts that were entered into prior to August 1, 2016, even if the work will be ongoing after August 1.