Reacting to a grass roots campaign by contractors and subcontractors, the Missouri Legislature has passed major retainage reform by a wide margin.
The bill provides for no cash retainage if contractors provide a substitute security (e.g., a letter of credit, a retainage bond or a certificate of deposit). It also provides for line item release of retainage. Further, it mandates that all retainage or substitute security must be released upon substantial completion, except for the value of punch list work. All funds withheld, whether retainage or progress payments, are declared to be trust funds, thus putting them outside the reach of third parties (e.g., bankruptcy trustees, the IRS and secured creditors). If the governor signs the bill, the new law will take effect after August 28, 2002.