By attorney Rachel Fritz
During the 2025 legislative session, the Iowa Legislature made revisions to the retainage fund provisions in Iowa Code Chapter 573, reducing the amount that a governmental body may withhold from a principal contractor's monthly payments. Specifically, Sections 573.12 and 573.13 now limit the retainage to no more than three percent of the monthly payment to the principal contractor. This amount is intended to cover the payment of claims for materials supplied and labor performed throughout the duration of the project. This change marks a reduction from the previous provision, which allowed governmental bodies to retain up to five percent.
The withheld amount, referred to as the "retainage," is held by the governmental entity to ensure that the contractor meets all contractual obligations. These obligations include completing the project in accordance with the terms of the contract and paying all subcontractors, suppliers, and other parties involved. Retainage serves as a financial safeguard for the governmental body, ensuring that the contractor does not abandon or default on the project. Once all claims for materials, labor, and other contractual obligations are satisfied, the retainage can be released to the contractor.
This amendment to Chapter 573 will take effect on July 1, 2025. Governmental bodies are advised to consult legal counsel for applicability of these revisions to existing construction contracts for public improvement projects.
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