Pros and cons of the new Illinois construction retainage limit

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Pros and cons of the new Illinois construction retainage limit

On Behalf of | Jan 6, 2020 | Construction Litigation

People in the construction industry may have been happy to hear about the passing of a new Illinois regulation that limits retainage to 10%, according to Construction Dive. Since late August, when the governor signed the bill, not only can owners and contractors no longer hold more than that 10% from those working on private projects, they must also reduce the amount to 5% when the contract is at 50% completion. 

This may be a boon to smaller contractors and subcontractors that need the money to complete the job, particularly when it comes to receiving that first 5% of the retainage early. However, some in the industry say that setting the official limit will not change much because 10% is the standard practice. 

The law may create a disadvantage for owners on the other side of the deal, as it could affect relationships with lenders. Owners may also need more diligence to ensure that the work has reached the 50% mark. 

In a letter to the Illinois General Assembly in 2018, the previous governor explained his veto of State Bill 3052, which had the exact same language as the recently signed Public Act 101-0432. He stated that retainage negotiations belong in the hands of private parties. The then-governor believed that imposing a legal limit could harm businesses and discourage economic growth, as well as cause an increase in financing costs. 

He feared it would also eliminate or reduce the recourse owners had to address contractor or subcontractor performance problems on construction projects. The law does not affect single or multifamily homes that have 12 units or fewer. 

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